The concept of stakeholder economy emphasises long-term value creation – one where businesses assume greater responsibilities beyond short-term profits and account for the needs of stakeholders, ranging from shareholders, employees and business partners to the environment, society, and community. Within the capital market, long-term value creation can be achieved by promoting responsible businesses and facilitating the intermediation of capital to sustainable and responsible businesses, widening its reach to broader stakeholders of the economy.
As SRI plays an important role in facilitating access to sustainable finance across the spectrum of issuers, investors and intermediaries, several measures were introduced in 2021, aimed at deepening and broadening the SRI segment.
Broadening and Deepening SRI Ecosystem
Companies continued to leverage market-based financing instruments such as SRI sukuk and bonds to fund sustainable projects amid challenging economic times. The expansion of the SRI Sukuk and Bond Grant Scheme3 had encouraged more companies to finance green, social and sustainability projects through SRI sukuk and bonds.
A total of RM8.3 billion of SRI sukuk had been cumulatively issued under the SRI Sukuk Framework4 since its introduction in 2014 up to 31 December 2021. Out of the total SRI sukuk issuances, RM6 billion were dually recognised under both the SRI Sukuk Framework, and the ASEAN Green Bond Standards/ASEAN Sustainability Bond Standards. As at 31 December 2021, issuances from Malaysia accounted for 18% of total issuances labelled under the ASEAN Green, Social and Sustainability Bond Standards.
3 The scope of the SRI Sukuk and Bond Grant Scheme was expanded for sukuk issued under the SC’s SRI Sukuk Framework and bonds issued under the ASEAN Green, Social and Sustainability Bond Standards.
4 Cumulative issuances since the introduction of the SRI Sukuk Framework in 2014.
In 2021, the Guidelines on Sustainable and Responsible Investment Funds (Guidelines on SRI Funds) was revised to facilitate and encourage more issuances of SRI funds in Malaysia. For greater clarity, several enhancements were made by imposing additional disclosure requirements on feeder funds, as well as incorporating certification requirements on tax exemption for SRI funds. As at 31 December 2021, a total of 34 SRI funds were offered in Malaysia.
One of the key building blocks to mobilise private sector investments towards achieving sustainability goals is the development of a taxonomy for sustainable investments. This SRI taxonomy will provide guidance on the classification of economic activities and promote a common language on the financing of sustainable activities, including addressing greenwashing risks. In 2021, the SC and the Industry Working Group (IWG) developed the principles-based SRI Taxonomy for the Malaysian capital market, which comprised environmental, social and sustainability components.
The SRI Taxonomy aimed to facilitate greater product diversity and accelerate the development of SRI as an asset class. It would provide issuers, investors, intermediaries, and asset owners more clarity and guidance in identifying sustainable investment assets or activities.
The SRI Taxonomy was released for public consultation at the end of 2021. Following the consultation period, the SC would work towards releasing the final SRI Taxonomy document in 2022.
The financial services sector plays a critical role in supporting sustainable business activities. The SC and BNM had made positive strides in accelerating sustainable development and supporting the transition towards a low-carbon economy.
As Co-Chairs of the Joint Committee on Climate Change (JC3), the SC and BNM jointly chaired three meetings in February, August and December 2021. As part of its priorities in 2021, the JC3 discussed the progress of current initiatives and priorities for 2022 under its sub-committees, which include the newly established Sub-Committee on Bridging Data Gaps, to further strengthen the capacity of the Malaysian financial sector in addressing climate risk.
Key deliverables in 2021 include:
The SC had long championed sustainable finance initiatives in ASEAN through its co-chairmanship of the Sustainable Finance Working Group in the ASEAN Capital Markets Forum (ACMF) and the chairmanship of the Infrastructure Finance Working Group in the ASEAN Working Committee on Capital Market Development (WC-CMD).
One of the first sustainable finance initiatives of the ACMF was the launch of the ASEAN Green Bond Standards in 2017, followed by the ASEAN Social Bond Standards and ASEAN Sustainability Bond Standards in 2018. There has been encouraging traction of bonds labelled under these Standards, with a total of US$20.9 billion issued as at 31 Decembe 2021. Following this initiative, the ACMF issued its Roadmap for ASEAN Sustainable Capital Markets (Roadmap) in 2020 to chart ASEAN’s path for sustainable finance in other areas of the capital market, and 2021 saw the first full year of implementation for the recommendations under the Roadmap.
One of the key recommendations was the development of the ASEAN Taxonomy for Sustainable Finance (ASEAN Taxonomy) – Version 1, released on 10 November 2021, which provided a frame for discussions with the public and private sector stakeholders to further develop the ASEAN Taxonomy.
The IOSCO Sustainability Task Force (STF) had been focusing on sustainability-related disclosures for issuers and asset managers, ESG ratings and ESG data providers. As a member of STF, the SC contributed to the IOSCO Report on Sustainability-related Issuer Disclosures.
The report set out IOSCO´s vision for a global baseline of investor-focused sustainability standards under the International Financial Reporting Standards (IFRS) to improve the global consistency, comparability and reliability of sustainability reporting. To crystalise this vision, IOSCO closely engaged with IFRS to ensure expectations of international securities regulators were met.
This vision was further supported through the establishment of the International Sustainability Standards Board and publication of the prototype for Climate Disclosure standard by the IFRS Foundation, at the 26th United Nations Climate Change Conference of the Parties (COP26).
