REITs in good stead for F4GBM Index inclusion

PETALING JAYA: Malaysian real estate investment trusts (REITs) are expected to gain further traction in the sustainability space, with increasing potential for enhanced representation in the FTSE4Good Bursa Malaysia (F4GBM) Index in the coming review cycle this December.

This momentum reflects the sector’s growing alignment with environmental, social, and governance (ESG) standards. CIMB Research highlighted that Sunway Real Estate Investment Trust (Sunway REIT) is a strong contender for F4GBM Index inclusion by year-end.

“Our assessment indicates that Sunway REIT is on track for potential inclusion in the F4GBM Index in Dec 2025,” the brokerage said in a recent note.

In the June 2025 review, Sunway REIT joined Axis REIT and CapitaLand Malaysia Trust (CLMT) in attaining ESG Grading Band 4 — the second-highest tier — marking the highest number of REITs achieving this level in the last six cycles. Despite this, Sunway REIT was not added to the index at that point as it was not a constituent of the FTSE Bursa Malaysia EMAS Index as at end-May 2025 due to previously low liquidity.

However, a turnaround in liquidity saw Sunway REIT re-enter the FBM EMAS Index following the June 2025 semi-annual review, paving the way for potential inclusion in the December 2025 F4GBM Index review.

CIMB Research recommended “hold” on Sunway REIT, with a target price of RM2.11. 

According to CIMB Research, “Only companies that are constituents of the FBM EMAS Index as at end-May are eligible for consideration in the June F4GBM Index review, while companies added thereafter are only eligible in the December review.”

The REIT sector's weightage in the F4GBM Index has risen to 1.7% from 1.1% in December 2024, following the inclusion of 19 new companies in the June 2025 update. Among these were CLMT, KIP REIT, and YTL Hospitality REIT, bringing the total number of REIT constituents to seven out of 160.

“To qualify for inclusion in the F4GBM Index, companies must achieve a minimum ESG score of 2.9 out of 5,” CIMB Research noted. Based on its analysis, CLMT likely qualified due to liquidity, while YTL REIT and KIP REIT earned their spots through improved ESG performance.

Still, five of the 10 largest REITs by market capitalisation — which represent 93% of the sector’s total market cap — remain absent from the index, including KLCC REIT and IGB Commercial REIT, mainly due to liquidity issues. Al-Aqar Healthcare REIT was excluded for failing to meet the minimum ESG score.

“Overall, we are positive on the gradual progress made by REIT players in enhancing their ESG practices, as reflected by the increasing number of constituents in the F4GBM Index,” CIMB Research stated.

The brokerage emphasised that further ESG gains lie within the environmental pillar, particularly in reducing carbon emissions and boosting energy efficiency.

“A key area for improvement is the reduction of carbon emissions through greater adoption of renewable energy or improving energy efficiency,” it said.

REITs were encouraged to consider subscribing to Tenaga Nasional Bhd’s Green Electricity Tariff programme, which was revised in July 2025 to offer a more accessible flat rate of five sen per kilowatt-hour.

KIP REIT was singled out for retrofitting efforts across seven malls through a performance-based partnership that is expected to deliver energy savings of 15% post-capex recovery.

“Sustainability-linked financing embeds pre-agreed sustainability performance targets into financing terms, directly linking borrowing costs to the achievement of ESG outcomes,” CIMB Research added, citing Sunway REIT’s RM3.4mil in savings from 2021 to 2023 as an example.

With tenants increasingly favouring green-certified spaces and cost-effective financing tied to sustainability metrics, Malaysian REITs are positioned to benefit from continued ESG integration in the long term.