Principle-based Sustainable And Responsible Development For Malaysian Capital Markets

• Law Firm: Azmi & Associates
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Corporate and Company Law, Securities, Islamic Finance
• Author: Ms Serina Abdul Samad and Heu Wen Yen
• Published date: 16 February 2023

In recent years, there has been increasing awareness of corporate social responsibility ("CSR") and a global shift towards sustainable market practices- especially in light of the various climate emergencies that necessitate immediate global response. The recent pandemic has, nonetheless, hampered efforts to attain certain global goals such as the UN Sustainable Development Goals ("SDGs")¹, with funding gaps for financing sustainable development are expected to increase exponentially². It is no longer sufficient for such sustainability agendas to merely become part of national policies that rely on public financing. Greater support and commitment from private investments are required for the viable implementation of such agendas³. Hence, we witness the emergence of practices like Sustainable and Responsible Investment ("SRI")-- essentially encompassing any investment decision that embraces Environmental, Social and Governance ("ESG") considerations on top of economic returns⁴.

To preface, Malaysia has always been well-poised to implement these initiatives. This can be attributed to the intersection of certain ESG principles with the underlying tenets of Islamic finance, which becomes a matter of considerable significance due to Malaysia's global domination in the Islamic Capital Market (ICM)⁵. Coupled with the efforts of the Securities Commission Malaysia ("SC"), there has been an obvious shift towards achieving sustainable development and climate goals in the past few years. From the active participation of our SC in the ASEAN Capital Markets Forum (ACMF) which champions sustainable finance, to our membership of the International Network of Financial Centres for Sustainability (FC4S), whereby international financial centres strive to achieve the UN SDGs and the Paris Agreement⁶- these are just some of our many international commitments in pursuit of sustainable economic growth⁷.

Facilitative Regulatory Frameworks- the SRI Sukuk

Locally, the SC has spearheaded various initiatives to foster a facilitative SRI ecosystem in the Malaysian Capital Markets. One of its earliest and most notable efforts to date includes the establishment of the SRI Sukuk Framework in 2014. Leveraging Malaysia's position as a global leader in the sukuk market⁸, this framework facilitates the issuance of Shariah-compliant financing instruments exclusively for projects which benefit the environment and society. Some of the more notable issuances under this framework include the social impact sukuk issued by Khazanah in 2015 to widen the availability of quality education and the world's first green sukuk from Tadau Energy for a solar project in 2017⁹.

The SRI-Linked Sukuk

In June 2022, the SC introduced an SRI-Linked Sukuk Framework as part of the...