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While nascent, the SRI landscape has changed rapidly in recent years. Conducive regulatory policies and incentives, coupled with initiatives to scale industry capacity and awareness, have created traction in fundraising for green and sustainable objectives. Since the first SRI Sukuk in Malaysia was issued in 2015, the total value of outstanding SRI Sukuk and bonds issued under the ASEAN standards23 has grown by 40.7% CAGR from RM2.14 billion in 2017 to RM5.96 billion in 2020. Several institutional investors and domestic fund managers have signed up with the PRI, a United Nation (UN)-supported network of investors, paving the way for growth in SRI funds and investments. All PLCs have sustainability statements as part of their annual report, and investors can access information on ringgit-denominated SRI bond and sukuk issuances through the dedicated SRI centre on the BIX website.
Ongoing work to establish a SRI taxonomy and broaden the spectrum of SRI products will pave the way for greater capital allocation to sustainable initiatives and climate-related disclosures that are aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)24. This will shape transparency on climate risk management and broaden stakeholder engagements, which together with technical capacity-building programmes, will cultivate the culture and adoption of ESG elements in Malaysia.
The ICM has been a strong catalyst for sustainable finance, given the commonalities of their underlying principles. Innovations such as SRI sukuk, waqf share offerings through an IPO, and waqf-featured funds have demonstrated how the ICM facilitates the intermediation of capital formation for commercial purposes while also contributing to positive outcomes for the environment and society. Notably, the SRI sukuk framework facilitated the inaugural SRI social sukuk issuance in 2015 to fund trust schools and the world’s first green sukuk out of Malaysia in 2017. These were followed by the increased volume of SRI sukuk issuances, comprising projects that include solar photovoltaic power plants, green buildings, hydropower and affordable housing. For the waqf segment, the offering of waqf shares structured under a social enterprise model was the first of its kind globally. Dividends from the waqf shares were utilised to subsidise rental rates for selected tenants as well as for small shop lots for single mothers and lower income groups. These innovative instruments and initiatives under the ICM is consistent with the social aim of reducing inequality. The milestone Waqf-Featured Fund Framework launched in 2020 will broaden the range of innovative ICM products and provide the public with access to Islamic funds that allocate whole or part of the funds’ returns to waqf projects.
While the sukuk market has been instrumental for Shariah-compliant fundraising, it predominantly caters to listed and/or large corporations. In reaching out to the broader stakeholders of the economy, there is a need to expand ICM beyond traditional assets and markets. As part of efforts to enhance financial inclusion for the economy, the expansion of ICM into alternative fundraising avenues via fintech will be crucial to create more opportunities for MSMEs and enable participation by more investors – both of which are significant stakeholders of the economy. Initial efforts have seen the emergence of Islamic alternative finance platforms and DIMs, as well as the recognition by the SC’s SAC that the trading of digital assets is permissible.
ASEAN Standards comprise of the ASEAN Green Bond Standards, ASEAN Social Bond Standards and ASEAN Sustainability Bond Standards issued by the ACMF.
TCFD was established by the Financial Stability Board to develop recommendations for more effective climate-related disclosures. In 2017, the TCFD released their disclosure recommendations for companies structured around four thematic areas – governance, strategy, risk management, and metrics and targets.
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