by MARK RAO/ pic by RAZAK GHAZALI

THE domestic capital market is expected to play a critical role in helping Malaysia meet the estimated RM45 billion required to finance its long-term sustainable development goals.

Securities Commission Malaysia (SC) chairman Datuk Syed Zaid Syed Jaffar Albar (picture) said climate change poses physical and financial risks to companies, potentially forcing previously viable businesses to go under in extreme circumstances.

The change to more sustainable practices, he said, requires investments in new technologies and funding which carries risks with indeterminate outcomes from a business perspective.

“This is why the capital market is uniquely placed to manage the transition to a sustainable economy,” Syed Zaid said in his speech at the commission’s headquarters in Kuala Lumpur yesterday.

“The market’s intrinsic role after all, is to finance and manage business and investment risks.”

Malaysia alone is projected to require RM45 billion in the next five years to finance its long-term sustainable development goals, based on the SC’s findings.

As such, the SC released the sustainable and responsible investment (SRI) roadmap yesterday to underpin the regulatory approach for the Malaysian capital market in establishing itself as a regional SRI centre.

The roadmap identified 20 strategic recommendations based on the SC’s five i-Strategy — a strategy introduced in 2014 to holistically develop a facilitative SRI ecosystem in the Malaysian capital market.

The recommendations broadly comprise the widening of the range of SRI instruments, increasing the SRI investor base, building a strong SRI issuer base, instilling a strong internal government culture and designing information architecture within the SRI ecosystem itself.

This includes, but is not limited to, aligning SRI instruments to international standards; enhancing the role of government-linked investment firms and institutional investors in SRI; and developing an IPO pipeline for green and social impact companies.

In 2017, the SC issued the guidelines on SRI funds which resulted in seven qualified SRI funds operating under these guidelines to date.

Meanwhile, Malaysia’s Islamic capital market has long adhered to the values of societal accountability, shared benefits and sustainable development, according to Syed Zaid.

Further to the SRI roadmap, the SC revised its SRI Sukuk Framework to align it more closely to international standards and increase its appeal to a broader demographic — including foreign issuers.

“This includes expanding the list of eligible SRI projects, enhancing disclosure and reporting requirements, and further clarification on the role of the external reviewer,” he said.

The SRI Sukuk Framework was first released in 2014 for the issuance of green, social and sustainability Islamic bonds. At the end of last month, a total of 10 SRI sukuk totalling RM4.3 billion were issued under the framework.

Finance Minister Lim Guan Eng stressed the integral role the capital market is to play in mobilising private investments to fund Malaysia’s development and environmental commitments.

“This is where the SRI roadmap comes in by providing guidelines and clarity for the industry,” he said during his keynote address at the launch of the roadmap.

The minister also highlighted that the government extended the income tax deduction on the cost of SRI sukuk issuance to 2023, while the income tax exemption for SRI fund managers was extended up to the same year.

“While the SC has been leading many development and regulatory initiatives in creating a holistic and facilitative SRI ecosystem in the Malaysian capital market, having the SRI roadmap to chart the strategic direction moving forward is essential.”