By ZAINAL IZLAN ZAINAL ABIDIN / Pic By HABHAJAN SINGH
The development of the Sustainable and Responsible Investment (SRI) ecosystem for the Malaysian capital market is a key priority for the Securities Commission Malaysia (SC), leveraging on the country’s leadership in the Islamic capital market. The SC has put in place a “5i strategy” to develop the ecosystem. The 5i’s are investors, issuers, instruments, internal culture and governance, and information architecture.
One of the early initiatives is the introduction of the SRI sukuk framework in 2014 which is widely acknowledged as a pioneering regulatory development that formally integrates the principles of Shariah with those of SRI. As some of you would know, the inaugural SRI sukuk issuance was the RM100 million Sukuk Ihsan by Khazanah Nasional Bhd in 2015, which is part of a RM1 billion pro- gramme to fund the development of trust schools. More recently in August, the second tranche of RM100 million was issued which include a retail portion of RM5 million.
Another significant milestone in product innovation under the sustainability agenda is the launch of the world’s first green sukuk in Malaysia in July under the SRI sukuk framework, thus strengthening Malaysia’s value proposition as a centre for sustainable finance and investment. Tadau Energy Sdn Bhd issued a RM250 million sukuk for the purpose of undertaking a solar project, with the ultimate goal of conserving the environment by providing an environmental friendly, clean and sustainable power supply.
The SC, Bank Negara Malaysia and the World Bank Group are working together to develop the green sukuk market in Malaysia. Green financing has gained significant traction over the last few years with global green bond issuances totalling US$82 billion (RM347.68 billion) in 2016 and targeted to reach US$130 billion this year (according to Climate Bonds Initiative’s latest data).
The new Malaysian Code on Corporate Governance issued in April this year further enhances the ecosystem for SRI in Malaysia, representing the fourth “i” in the SC’s 5i strategy for SRI development — internal culture and governance. Greater internalisation of corporate governance culture as envisaged under the code supports the sustainability agenda through more responsible and proactive practices. The Comprehend, Apply and Report, or CARE, approach that entails a shift from “comply or explain” to “apply or explain an alternative” aims to encourage companies to put more thought and consideration when adopting and reporting on their corporate governance practices, elevating it beyond a mere box-ticking exercise.
In further developing the SRI ecosystem and to complement the SRI sukuk framework, the SC is currently formulating the SRI funds framework which is targeted to be issued before the end of the year. This initiative will also enhance Malaysia’s fund management industry by broadening the range of investment fund products available in the market. Malaysia already has a well-developed Islamic fund management industry, including an Islamic fund management licensing framework that has attracted leading global firms to set up their Islamic operations in the country alongside Malaysian- owned firms.
- Zainal Izlan Zainal Abidin is the Securities Commission Malaysia MD for development and Islamic markets. This is an extract of his speech at the recent Kuala Lumpur Islamic Finance Forum 2017.