09/11/21

MALAYSIA: Islamic finance plays key role in supporting sustainable finance, says Securities Commission chairman.

As published on themalaysianreserve.com, Tuesday 9 November, 2021.

ISLAMIC finance plays a pivotal role in supporting the transition towards sustainable finance as it is an effective funding instrument, Securities Commission Malaysia chairman Datuk Syed Zaid Albar (picture) said.

He said within South-East Asia, bonds and sukuk issued under the Asean Green, Social and Sustainability Bond Standards amounted to US$16.7 billion (RM69.47 billion) with one fifth of the issuers were Malaysian entities.

“For Malaysia, sustainability has been a long-standing tenet of our Islamic capital market, which was established about 30 years ago. Over these three decades, we have experienced first-hand, the benefits of sustainable financing and investments.

“As such, we have continued to introduce dedicated product frameworks and guidelines to encourage product innovation even further to provide a vibrant sustainable and responsible investment (SRI) ecosystem,” he said in his opening address at the virtual Sustainable Finance Week in conjunction with Expo 2020 Dubai yesterday.

He said sustainable development promises better and more resilient economies and businesses, and vast amounts of capital are required to fund the transition to sustainability.

The task requires cooperation between the public and private sectors to see viable results.

“The finance sector, in particular, plays a critical role. The financial system is like the central nervous system of the economy — it coordinates and allocates resources within the economy. It steers resources to areas of growth, and redistributes economic gains to savers.

“I would up the ante here and say that the Islamic finance sector can play a truly pivotal role as it is founded on the principles of equity and sustainability. As such, we believe Islamic finance is well suited to provide the requisite innovation and financial solutions for the challenges the world is facing today,” said Syed Zaid.

At its core, he said Islamic finance gives precedence to funding the real economy, especially productive and sustainable activities that result in positive social and environmental impacts.

Islamic financial instruments also serve as a model for impact investing as they promote equitable and participatory growth.

Since 2014, about US$1.8 billion of SRI sukuk have been issued under Malaysia’s SRI Sukuk Framework with issuances covering a broad range of green and social projects ranging from solar power and sustainable natural resource management, to green building and trust schools.

As for sukuk, Syed Zaid said it encourages the use of new and sustainable approaches, such as funding the deployment of low carbon technologies, as well as contributing to the growth of transition finance.

“As a hub for the largest number of shariah-compliant funds globally, we can see close alignment between Islamic investments on the one hand, and ethical and responsible investing on the other.

“Given the industry’s Islamic expertise, it would be sensible to leverage existing resources and capabilities to grow both segments to appeal to a wider investor base,” he added.

He also noted that digitisation has paved the way for significant progress in the Islamic finance environment.

Automated discretionary portfolio management services or robo advisory has widened access to Islamic investing, narrowing the financial gap and ensuring the benefits of the capital market are shared more widely, he said.

In a keynote interview during the webinar, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said Malaysia will issue more bonds and sukuk that are focused on social and nature-friendly projects in its effort to combat climate change and accelerate the transition to a more resilient economy.

To further enhance sustainability efforts, the minister said the government had targeted and identified economic activities that contribute the most to Malaysia’s carbon emissions.

“We develop policies to render such activities to be more carbon efficient especially when it comes to electricity and transportation.

“In terms of taking a whole of nation approach towards sustainability, I would say the financial sector has played a key role in complementing the government’s strong lead in sustainability,” he added.