As the world transitions to a carbon neutral and green economy, individuals and corporations globally are embracing more environmentally friendly and sustainable practices.

“The Malaysian capital market can play a critical role in addressing this gap, especially in the green, social and sustainable sectors,” Securities Commission Malaysia (SC) chairman Datuk Syed Zaid Albar says, adding that the shift to sustainable practices will require investments in new technologies and funding.

“From a business perspective, this carries risks with indeterminate outcomes. This is why the capital market is uniquely placed to manage the transition to a sustainable economy,” he says.

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

Concurring with Finance Minister Lim Guan Eng, who said recently that the government is urging more institutional investors to allocate funds for sustainable and responsible investment (SRI), Syed Zaid notes that the regulator is looking forward to working closely with industries and public-listed companies to improve corporate sustainability practices, including green practices and sustainability disclosures.

“Corporate Malaysia must also take cognisance of and avoid the practice of greenwashing. They must be mindful of their social obligations and business impact on a wider constituency or group of stakeholders,” he says.

Greenwashing refers to the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound.

Syed Zaid says prospects for the SRI segment in Malaysia are favourable. Thus, its development must be carefully guided to ensure the segment’s long-term vibrancy and sustainability.

“Given our in-depth expertise and experience in Islamic finance, we have a distinct edge in promoting socially beneficial and sustainable financial products,” Syed Zaid says, adding that the issuance of the world’s first green sukuk in 2017 to finance a solar project earned Malaysia the World Bank’s recognition as a pioneer in harnessing Islamic finance for climate-friendly investments.

He says the SC is committed to creating a facilitative ecosystem for mobilising investments into financing sustainable and inclusive development.

The SRI Roadmap, which was unveiled last month, aims to create a facilitative SRI ecosystem and chart the role of the capital market in driving Malaysia’s sustainable development.

Syed Zaid says the launch of the road map is the culmination of a multi-stakeholder approach to charting the segment’s strategic direction ahead. “We believe that the five overarching strategies and 20 recommendations identified in the SRI road map will be pivotal in accelerating the growth of SRI domestically and regionally.”

Guided by the SRI road map’s 5i Strategy, Syed Zaid says, the SC has taken a holistic approach to developing the SRI segment.

The underlying motivation is to provide more options to issuers and investors that suit their respective SRI needs and requirements, he says. The strategy also recognises that an effective and facilitative regulatory framework is required to offer certainty and guidance to the industry while embedding accountability across various market stakeholders.

“Sustainability is an important global agenda, given the need to address real issues on the ground that are affecting society, such as the eradication of poverty, providing access to education and healthcare, and addressing climate change,” says Syed Zaid.

He adds that it is estimated that in the next 10 years, the world needs US$5 trillion to US$7 trillion annually to fund the United Nations Sustainable Development Goals.

In Malaysia, it is projected that in the next five years, the market will require RM45 billion to finance the long-term development goals. The capital market can play a critical role in achieving this, especially in the green, social and sustainable sectors, says Syed Zaid.

Since the launch of the SRI Sukuk Framework in 2014, there were 10 SRI sukuk with total issuances amounting to RM4.3 billion as at October. These include the world’s first green SRI sukuk to finance a renewable energy project and an issuance of social sukuk to fund the development of trust schools, says Syed Zaid.

Moreover, he notes that the SC has revised the SRI Sukuk Framework to align it more closely to international standards, which include expanding the list of eligible SRI projects, enhancing disclosure and reporting requirements, and further clarification on the role of the external reviewer.

“The revisions are expected to increase its appeal to a broader demographic, including foreign issuers,” says Syed Zaid.

“Potential green SRI sukuk issuers will also be pleased to note that they are eligible to apply for the SC’s Green SRI Sukuk Grant Scheme.”

He says the grant is meant to assist in defraying the cost of external review.

Also, to expand the range of SRI products and to attract investors to this segment, the SC issued the Guidelines on SRI Funds in 2017, says Syed Zaid. To date, there are seven approved SRI funds under the guidelines.

Syed Zaid added that success will be dependent on the collective efforts of industries and various stakeholders, including the regulators, to bring SRI to the forefront.

UN Resident Coordinator for Singapore, Malaysia & Brunei, Stefan Priesner

“The UN SDG goals aim to create a better world not only for this generation but also for the next generation by focusing on sustainable development. And we think the capital market can play a huge role in funding these goals.”

Under Secretary-General for Partnerships, International Federation of Red Cross and Red Crescent Societies (IFRC) Tan Sri Dr Jemilah Mahmood

“Non-profit organisations are the link between government, businesses and people. For the SRI Roadmap to be successful, partnerships between government, the corporate sector and institutions like civil society are going to be very key.”

CEO of BIMB Investments Najmuddin Mohamad Lutfi

“For Islamic finance, the features have a lot of commonality with SRI and ESG (environmental, social and governance). As you know, Malaysia is among the leading Islamic finance centres in the world. We have a very robust and developed Islamic market and because of that, we have quite a head start when it comes to SRI and ESG.”

Finance Minister Lim Guan Eng

“The SRI emphasises not just financial returns, but also its positive impact on the environment,governance, culture and social development.”