KUALA LUMPUR (March 10): The SRI Taxonomy presents a significant opportunity to ensure standardisation and compatibility of sustainable and responsible investment (SRI) assets, avoid potential market fragmentation, and reduce the risk of greenwashing, according to Securities Commission Malaysia (SC) chairman Datuk Seri Dr Awang Adek Hussin.

It allows for proper and consistent identification and classification of different types of economic activities that are aligned with environmental, social and governance sustainability objectives, and this will provide the necessary transparency to capital market participants on what is sustainable, he said in his opening remarks at Securities Industry Development Corp's SRI Taxonomy: Insights and Implementation conference on Friday (March 10). 

“Also, as it is domestically driven, we ensure that it suits local requirements, be it for our corporate issuers or investors,” he said. 

The environmental component of the SRI Taxonomy is aligned with Version 1 of the Foundation Framework of the Asean Taxonomy for Sustainable Finance and Bank Negara Malaysia’s Climate Change and Principle-Based Taxonomy. 

“We have also included a social component in the SRI Taxonomy. This will enhance the synergies between the Islamic capital market and SRI, as well as further strengthen Malaysia’s Islamic finance leadership.

“All these additional components can boost our market’s appeal, and attract more investors, particularly those that place a premium on sustainable practices. It also ensures that capital is directed appropriately towards projects and companies that have real environmental and societal benefits,” said Awang. 

“On the part of the SC, we hope that the SRI Taxonomy will encourage the development of new SRI products and opportunities. This will ensure that the capital market continues to meet the growing demand for sustainable investments here in Malaysia,” Awang added. 

Moving forward, he said, the SC will be working on the next phase of the SRI Taxonomy, to provide further guidance in identifying activities based on metrics and thresholds.

Malaysia was among the earliest in the region to release specific guidelines to facilitate sustainable financing and investments, said the SC chairman. 

“Take for example, the SC’s Guidelines on Sustainable and Responsible Investment Funds, or SRI funds in short. Since its introduction in 2017, the number of SRI funds in the market has grown to more than 50, with a total size of RM7 billion."

The SC would continue to update the guidelines to suit current market environments, he said. 

“Just last month, it was revised to incorporate additional disclosure and reporting requirements to enhance the transparency of SRI funds, among others.

“In addition, requirements to qualify for the Asean Sustainable and Responsible Funds Standards, or SRFS, were included. These regional standards are the work of the Asean Capital Markets Forum’s Sustainable Finance Working Group, of which the SC is a co-chair,” he explained.