Keynote Address at National Climate Governance Summit 2024
Speaker: Dato’ Mohammad Faiz Azmi, Chairman, Securities Commission Malaysia
Location: Sasana Kijang Delivered: 11 September 2024
Key Highlights:
In his keynote address, SC Chairman, Dato’ Mohammad Faiz Azmi emphasised that the journey towards a smooth and just transition involves moral and ethical challenges. He also urged all stakeholders to collaborate to create a capital market that serves the greater good.
Here are highlights from his keynote address:
The capital market has the potential to be a major catalyst in a just transition by directing investments into critical sectors like renewable energy, green technologies and sustainable agriculture, among others.
The SC’s SRI Taxonomy incorporated three key social objectives: enhanced conduct towards workers, consumers, and affected communities. This reflects Malaysia's leadership in Islamic finance, where ethical and social investing are paramount
The capital market has a role in helping to ensure some resilience in the economy and providing capital for Climate Adaptation work.
Since the release of the SRI Sukuk Framework, RM27.61 billion of SRI Sukuk have been issued in Malaysia.
The SC’s Maqasid Al-Shariah Guidance can help elaborate how Islamic finance can be used for a just transition and climate effect mitigation.
The Securities Industry Development Corporation is leading efforts to educate and empower market participants on SRI practices.
Full Speech:
Yang Berbahagia Datuk Johan Mahmood Merican, Secretary General of Treasury, Yang Berbahagia Datin Seri Sunita Rajakumar, Founder and Chairperson Climate Governance Malaysia, Distinguished guests, Ladies and gentlemen.
Assalamualaikum and good morning.
First, I must thank Datin Seri Sunita for both inviting me to speak and also educating me on climate issues along the way. Every society needs passionate people to help improve things around them and Sunita is definitely one of them.
I had prepared a speech some time ago and it explained what we are doing about climate change at the Securities Commission and just transition in particular. All that changed when l had the honour of listening to His Royal Highness the Sultan of Perak speak at the SC-OCIS Roundtable in Oxford last weekend.
Listening to him speak on humanity in finance, made it clear to me that it wasn’t about what we are doing or how we were doing things. It was about why we are doing things. And while people and governments do emit their fair share of greenhouse gases, it is the corporate world as a group that emits the most. The usual reason given is that corporates must generate returns not just for their shareholders but also their stakeholders and so cost is a key driver. Essentially, they are maximising profits as an objective. So, the question now, is this all we expect of our companies? Is making a good return the only purpose? Let me now quote Tuanku Perak’s words on the matter:
“At its heart, restoring humanity in finance means that the previously paramount goal of economic growth must now be balanced far more carefully with the goals of environmental stewardship and social inclusion. It means that the pursuit of profits must be tempered by a recognition of our collective responsibility to protect our environment, and better serve society at large. Businesses must become part of the solution to our various global challenges. They must take responsibility for their broader impacts on the world around them, on their stakeholders as well as shareholders – no longer able to dismiss these as being outside their primary profit- making functions.
And the good news, I think, is that there is now widespread recognition that the time for unfettered capitalism is over. Businesses are no longer able to disregard their broader impacts. Instead, they are expected to avoid and minimise harm, and also, increasingly, to compensate for any harm they have caused. Mining companies must clean up when they leave a site. Agricultural companies must allocate land for protective buffers around waterways. The chemicals they use are now carefully monitored, and the workers applying these must have protective gear.” End quote.
These words resonate with me and it should resonate with all corporates and their regulators. Enough is enough and we should recognise that the time for unfettered capitalism is over.
Just transition
Bringing the matter closer to home, as custodians of the capital market, we have a profound responsibility – not just to navigate these challenges but to ensure that our transition is just and inclusive.
The concept of a just transition is key. It embodies the principle that no one should fall behind as we move towards a more sustainable economy. This is not merely an environmental or economic imperative; it is a moral one. It means safeguarding livelihoods, protecting the vulnerable and creating opportunities for all segments of society.
For the capital market, our role goes beyond facilitation. We must actively shape a future where capital flows towards investments that are not only sustainable but also socially responsible.
The Potential of the Capital Market for a Just Transition
Ladies and gentlemen
The capital market has the potential to be a major catalyst in this transition. We can direct investments into critical sectors like renewable energy, green technologies and sustainable agriculture, to name a few. Malaysia has one of the largest bond markets in the region that can support such needs. It also means supporting small and medium-sized enterprises (SMEs) in their sustainability journey, ensuring they have access to the financing and resources needed to thrive in a low-carbon economy.
In this regard, the SC’s Principle based SRI Taxonomy introduced in 2022 was one of the first taxonomies globally to include a social component, furthering the SC’s commitment towards a more holistic approach to sustainable and responsible investments. Beyond environmental considerations, the SRI Taxonomy incorporated three key social objectives: enhanced conduct towards workers, consumers, and affected communities. This inclusion reflects Malaysia's leadership in Islamic finance, where ethical and social investing are paramount. The development of these social objectives was stakeholder-centric, ensuring a comprehensive assessment of the social impact of economic activities.
And when the transition has happened, we will have to deal with the consequences. In other words, how do we continue to operate in a world that is significantly hotter. The capital market again has a role in helping to ensure some resilience in the economy but also providing capital for Climate Adaptation work that is to come. This is normally the government’s responsibility but the private markets have a role to play using a mixture of blended finance and other tools to make some of these projects, bankable.
Securities Commission work
In this regard, the SC has been proactive in developing frameworks and guidelines to create an ecosystem that encourages sustainable practices and sustainable investments can flourish.
Since 2011, we have embedded Sustainable Responsible Investment (SRI) as a key growth strategy in our Capital Market Masterplans.
Under CMP3 and the SRI Roadmap, we continue to develop a robust SRI ecosystem in Malaysia, introducing innovative products that meet the diverse needs of businesses and investors.
We have seen early successes, such as financing Malaysia’s sustainable development goals and climate ambitions. Since the release of the SRI Sukuk Framework, RM27.61 billion of SRI Sukuk have been issued in Malaysia, funding a wide range of projects from renewable energy to affordable housing.
As part of our CMP 4 deliberations, we will start to consider if our market can be right sized to cover Climate Adaptation needs. These will be for more long-term funding and infrastructure projects.
Another development was to look again at Islamic Finance to make it relevant to Climate issues. SC recently introduced the principles-based Maqasid al-Shariah Guidance for the Malaysian Islamic Capital Market (ICM). The 6 aspirations with the 15 principles in the guidance, complement the existing Shariah requirements. These aspirations and principles look at the true intent of Islam, beyond the ritual and the rules. The substance, if you like. We believe this guidance will help explain better how Islamic Finance can be used in the context of a just transition and to mitigate other climate effects.
We are also about to release the National Sustainability Reporting Framework, ensuring that our financial and sustainability reporting aligns with both the science of climate change and the ethical and moral expectations on businesses. After all, you cannot control what you can’t measure.
As we move towards a sustainable future, the demand for skills in green technology, sustainable finance and responsible business practices will continue to grow. This means investing in education, training and capacity-building initiatives that equip our workforce with the skills needed.
The Securities Industry Development Corporation (SIDC), the capacity-building arm of the SC, is leading efforts to educate and empower market participants on SRI practices. Currently, SIDC has 47 titles of programmes on sustainability and SRI, catering to the different needs of organisations in the capital market. They will also work with other bodies to curate a list of industry relevant training.
To drive a just transition, organisations must be equipped with the knowledge and tools to integrate sustainability into their operations and decision-making processes.
Closing
Ladies and gentlemen,
In closing, let me emphasise that our journey towards a smooth and just transition is not just an economic or environmental challenge – it is a moral and ethical one.
We must all work together to create a capital market that serves the greater good – a market that not only generates wealth, but also upholds the values of fairness, compassion and sustainability.
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.
