Opening Remarks
NaviGate: Capital Market Green Financing Series
Sustainable and Responsible Investment Linked Sukuk:
An Introduction to the Framework
Sharifatul Hanizah Said Ali
Executive Director, Islamic Capital Market Development
Securities Commission Malaysia
|
Bismillahirrahmanirahim Distinguished guests, Ladies and Gentlemen, |
|
| 1. | It is a pleasure to welcome all of you to the workshop titled ‘Sustainable and Responsible Investment Linked Sukuk - an Introduction to the Framework’, under the flagship of ‘NaviGate Capital Market Green Financing Series’. |
| 2. | I would like to take this opportunity to thank my colleagues at the Securities Commission Malaysia and Capital Markets Malaysia, or CMM, for their support in bringing the many stakeholders together as we collectively strive to advance the sustainable agenda. |
| 3. | I am pleased to be able to deliver the Opening Remarks this morning given the SC’s continued emphasis in fostering a more sustainable and responsible capital market ecosystem. It is encouraging to note the industry’s ongoing commitment and participation based on the significant interest and turnout for the workshop albeit in a virtual mode. |
| 4. | As a background, sustainability-linked bonds, or SLB, and sustainability-linked sukuk, or SLS, are the fastest growing product segment under sustainability-themed instruments. SLB and SLS issuers have been mainly from the high carbon dioxide, or CO2, emitting sectors, setting corporate objectives for the reduction of CO2 emission. |
| 5. | The growing interest globally for SLB and SLS have boosted issuance volume to 130.2 billion US Dollars with 271 deals in 20211. Domestically two SLS and one SLB have been issued amounting to a combined total of 1.45 billion US Dollars, under the International Capital Market Association's SLB Principles within the last 8 months, also signalling the upward trajectory of sustainable-linked bonds and sukuk. |
| 6. | Globally, SLB and SLS have proved to be a useful financial instrument for issuers to raise capital in view of their intent to fulfil sustainable goals and at the same time committing to its relevant targets. |
| 7. | The shared purpose of achieving sustainability has intensified across international markets with the United Nation’s Sustainable Development Goals, amongst others, providing the impetus for companies to incorporate sustainability-linked finance aspirations into their overall strategic considerations. Successfully delivering sustainable targets set by the companies will have positive financial or non-financial effects such as enhanced profiling by demonstrating to the investors their commitment to sustainable causes. |
| 8. | As the demonstration effects of SLB and SLS and its growth continue to be acknowledged within the capital market in particular the Islamic capital market, the SC remains committed to advance the sustainable agenda and promote the awareness for SRI-linked sukuk to the broader stakeholders of the economy. There are significant opportunities for the sustainable segment to attract a more diverse issuer and investor base. |
| 9. | In view of this, the SC recently introduced the SRI-linked Sukuk Framework to bring companies along the sustainable journey by facilitating fundraising in addressing sustainability concerns such as climate change or social issues, with features that relate to the issuer’s sustainability performance commitments. |
| 10. | The framework provides clear expectations for the issuer to comply as it is premised on financial as well as structural features, disclosure and reporting in accordance with international best practices, and further enable issuers to demonstrate sustainability priorities with measurable and externally verified targets that can be tracked by investors. |
| 11. | Under the framework, the proceeds raised can be utilised for general purpose, subject to the issuer committing to future improvements for sustainability outcomes within a predefined timeline, which will be monitored using key performance indicators. |
| 12. | SRI-linked sukuk will also for example, enable companies in high-emitting industries as well as other industries to transition into a low-carbon or net zero economy, in line with the country’s agenda to achieve net zero by 2050. High-emitting industries are at a high risk of being phased out given the accelerated shift towards developing a climate-resilient future. A typical KPI would be a reduction in carbon emission from baseline 50 million tonnes to 40 million tonnes, say in year 3. |
| 13. | We hope that the framework will encourage increased mobilisation of private sector and issuers’ financing for sustainable development whilst meeting the rising global demand for sustainable financing. |
| 14. | The issuance of the Framework is also in line with the broad strategic direction outlined in the SC’s Capital Market Masterplan 3 to reinforce Malaysia’s value proposition as the regional centre for Shariah-compliant SRI and serves as an extension of the initiatives under the SRI Roadmap introduced in 2019 to broaden SRI products offerings. |
| Ladies and gentlemen, | |
| 15. | In the past, companies involved in green projects have been raising capital through the more traditional instrument that is sukuk. In 2016, the SC with the support of CMM collaborated with the World Bank and Malaysian International Islamic Financial Centre to engage with companies to promote greater utilisation of green SRI sukuk. Since then, the momentum for SRI sukuk gained further traction with 8.8 billion Ringgit2 issued domestically up until June 2022, under the SRI Sukuk framework. |
| 16. | Similarly, there will be opportunities for issuers to issue performance linked SRI-instruments and in particular the SLS because of issuers’ liberty in utilising the sukuk proceeds. I urge that the Principal Advisors to encourage issuers to do so. Since utilisation of proceeds under SLS is for general purpose, all companies can become issuers of SLS with the proviso to commit to ambitious sustainable objectives. |
| 17. | These companies may require financing for working capital, operational or capital expenditures, and even fundraising for acquisitions. This would profile their sustainable commitments to their stakeholders by contributing to the nation’s goal towards achieving a net zero economy. It is therefore imperative for Principal Advisors to play a pivotal role in attracting issuers to participate in sustainable-linked ambitions including climate change finance amongst others. This is also in tandem with Malaysia’s pledge in committing to reduce its economy-wide carbon intensity as announced at the United Nations-backed climate change conference or COP26 in 2021. |
| 18. | In conjunction with the workshop, we are happy to announce that as an added incentive for companies to issue SRI-linked sukuk, the SRI Sukuk and Bond Grant to defray external review cost for issuance under SRI sukuk and ASEAN Bond Standards has been expanded to include sukuk issued under the SRI-linked Sukuk Framework effective 8 August 2022. Eligible issuers of SRI-linked sukuk can now claim the grant to offset up to 90% of the external review costs incurred, subject to a maximum of 300,000 Ringgit per issuance. |
| 19. | I hope the workshop today forms the continuation of collective discourse within the industry to advance the development of SLS and sustainable agenda. |
| 20. | With that, I look forward to the workshop presentations and vibrant discussions ahead. |
| Thank you. | |
|
Assalamu’alaikum |
|
