How have you articulated and implemented a sustainability strategy at Bursa Malaysia? Who are the key stakeholders and what factors are critical for success for such an exercise?
The aim of assimilating sustainability into our organization as well as the marketplace was in line with the aspiration to establish Bursa Malaysia as the preferred marketplace for sustainable and responsible investment.
Following a thorough analysis of the materiality assessment exercise and consultation with key internal and external stakeholders, Bursa Malaysia had formulated the Sustainability Roadmap 2021–2023 in 2020. The roadmap is underpinned by five priority areas and 25 key strategies, which aims to integrate sustainability into our core operations and the wider ecosystem.
Stakeholder feedback was essential in formulating a robust and effective strategy. It aids in the identification of strategies that address our stakeholders’ needs and concerns. Recognizing their significance, we conducted an annual materiality survey to collect feedback from our stakeholders on issues they consider to be important.
Stakeholders are categorized into nine key groups, namely Public Listed Companies (PLCs) or potential PLCs, Investors, Intermediaries, Regulators and Government Agencies, Employees, Shareholder and Analysts, Industry Associations, Professional Bodies and Industry Experts, Vendors and Suppliers, and Community Groups.
We believe the success of implementation of our sustainability strategy necessitated a holistic approach. Therefore, we have ensured that each strategy in the Roadmap is supported by an implementation plan with clear division of responsibilities across our functional units, enabling sufficient focus and allocation of resources.
Aside from the Sustainability Roadmap, we have a Sustainability Policy, which outlines our sustainability commitments and provide guidance on how to operate our business responsibly. The commitments are characterized by the following three pillars which help emphasize our behavior and conduct across our operations:
• Economic/Market
• Environment; and
• Social.
What key themes and objectives form the cornerstones of Bursa Malaysia’s sustainability strategy?
Bursa Malaysia’s 2021–2023 Sustainability Roadmap is built around three core pillars namely Marketplace, Internal and Community with five priority areas, as outlined below:
i) Marketplace
a) Priority Area 1: Strengthening our core by building capacities of market participants to support a vibrant and sustainable capital market.
b) Priority Area 2: Driving our growth. We aim to enhance a sustainable finance ecosystem through new investment products and high standards of sustainability practices and disclosures.
ii) Internal
a) Priority Area 3: Protecting our Environment by reducing our environmental footprint and managing climate-related risks as we transition toward a low carbon future.
b) Priority Area 4: Empowering our workforce. We aim to cultivate an empowered workforce to develop more sustainable approaches.
iii) Community
a) Priority Area 5: Advancing our communities by creating a positive impact for society and demonstrate commitment to support social issues that are aligned with our community focus areas.
As an Exchange, we want to facilitate a sustainable capital market and assist the nation’s transition toward a low-carbon future. This is aligned with our vision to be ASEAN’s leading, sustainable and globally connected marketplace.
In addition to the five priority areas, we also developed a Thought Leadership Strategy to further galvanize our influencer role in the sustainability space.
The Thought Leadership Strategy is supported by a wide range of high-level content available on our BURSASUSTAIN platform. It includes a dedicated ‘CEO’s Thoughts’ column where our CEO shares his views on various sustainability topics every month, and a video series ‘CEO2CEO’ in which our CEO engages in peer-to-peer conversation with other corporate CEOs about their approach and thoughts on sustainability.
Another important component of our Sustainability Strategy is our partnership with ecosystem players, the recent and strategic partnership being with the UN Global Compact Network Malaysia and Brunei, with whom we have developed the Corporate Sustainability Practitioner (CSP) Competency Framework.
The CSP Competency Framework is designed to help guide sustainability practitioners and support their work in transitioning their organization toward sustainable business models. Through this competency framework, corporate sustainability practitioners in Malaysia will be able to gain credentials and learn how to be the change agents for responsible and profitable business. Further, the CSP Competency Framework is also accompanied by a digital self-assessment tool to support practitioners to upskill and reskill on corporate sustainability.
With initiatives such as Bank Negara Malaysia (BNM)’s important Values-Based Intermediation (VBI) well established and understood, does Malaysia enjoy an inherent competitive advantage in the area of Islamic sustainable investment? Is it simply a case of building on these existing initiatives?
Since the adoption of VBI by Malaysian Islamic banks in 2017 and more recently by Takaful operators, BNM has observed positive momentum for the Islamic banking industry, intermediating around US$38.6 billion (RM161 billion)-worth of VBI-related transactions as of December 2020.1 According to the Finance Minister, Tengku Datuk Seri Zafrul Tengku Abdul Aziz, the implementation of VBI reflects the industry’s efforts to produce a positive and sustainable impact.2
VBI aims to deliver the intended outcomes of Shariah through practices, conduct and offerings that generate a positive and sustainable impact to the economy, environment, as well as the community, and is consistent with the shareholders’ long-term interests such as sustainable returns. Additionally, it aims to achieve the economy, society and environmental goals, all within the Maqasid Shariah, with Shariah outcomes including justice, wealth protection and wealth circulation, among others.
VBI is primarily based on intermediation in Islamic banking, while sustainable and responsible investment (SRI) is concerned with intermediation in capital markets. While values under VBI are derived from the Maqasid Shariah, the values under SRI, on the other hand, are derived from pure economic, social and environmental frameworks, and may be Shariah compliant.
VBI realigns Islamic banking toward ‘substance over form’ based on the Maqasid Shariah, whereas SRI realigns capital market activities also toward ‘substance over form’ but based on local and global sustainable strategy initiatives, such as the UN Sustainable Development Goals.
VBI and SRI share great similarities as both look beyond structures, contracts and agreements, and shift the focus toward the creation of impact. VBI and SRI could potentially leverage each other to create a comprehensive ecosystem that could positively impact the economy, society and the environment.
VBI is a game changer for Islamic finance as it pushes forward into proactive action toward sustainability and sets forth its ethical features, which are derived from the Maqasid Shariah with a strong resonance with the principles of Islamic finance, as well as an overlap with sustainable investment and environmental, social and governance (ESG).
Technological tools that enable substantial data recording, tracking and analysis have the ability to showcase VBI’s positive influence in Islamic capital markets and will assist in its mainstream adoption.
What role do you see Bursa Malaysia playing as a standard bearer for Islamic sustainable investment in Malaysia and the region? How important is this role in terms of encouraging issuers and investors to embrace a green and sustainable agenda?
Bursa Malaysia is home to the largest number of public listed companies in ASEAN, and one of the most vibrant and diverse marketplaces facilitating trade in both conventional and Islamic securities and derivatives.
Our crude palm oil futures serves as a global price benchmark for the commodity, while innovations such as its Bursa Suq Al-Sila’ commodity Murabahah trading platform and Bursa Malaysia-i end-to-end Shariah compliant securities trading and investing platform are world’s firsts in the Islamic capital market. These innovations offer unique value creation opportunities for its stakeholders and create strategic linkages to exchanges in key destinations.
Bursa Malaysia is delighted to be at the forefront of thought leadership in Islamic capital markets, with the largest portfolio of Islamic goods and services in ASEAN. Our expertise in providing Shariah compliant market-based solutions enables us to promote a better understanding of the value-based Shariah investment principles.
For instance, Bursa Malaysia-i, which offers faith-based investors a unique proposition and platform for Shariah compliant investing, positions the Exchange as a global marketplace for Shariah listing and investments.
As at the end of October 2021:
(i) 748 out of 948 listed companies on the Exchange, or 79%, are Shariah compliant;
(ii) Shariah market capitalization makes up 68% of the total market capitalization of RM1.8 trillion (US$424.42 billion), and
(iii) The average daily trading value of Shariah compliant securities makes up 79% of the overall average daily trading value of RM3.8 billion (US$895.99 million).
We also observe that our Shariah indices consistently outperformed their conventional counterparts over the last 10 years. For example, the FTSE Bursa Malaysia Hijrah Shariah Index, comprising the 30 largest Shariah compliant companies on the FTSE Bursa Malaysia EMAS Index, has surpassed the FTSE Bursa Malaysia KLCI and FTSE4Good Bursa Malaysia Index, growing about 24% between 2010 and October 2021. These facts serve to suggest that Shariah compliant investments are an attractive source of value for investors.
As sustainability and ESG considerations become more mainstream in the capital market and investment conversations around the globe, there is a growing number of investors that place greater emphasis on sustainable solutions.
As a leader in the Islamic finance landscape, the Malaysian Islamic capital market has taken the lead in promoting sustainability as well as the ESG proposition based on its shared values with Islamic finance.
We see ample scope to capitalize on the growing demand for asset diversification, SRI and ESG to expand the global reach of our innovative Shariah compliant product and service offerings. This presents a strong growth opportunity for the Islamic capital market, due to the common principles between SRI, ESG and Shariah investing.
The convergence of SRI, ESG and Shariah plays a significant role in facilitating and delivering our unique proposition to further build our strength and competitive edge in the Islamic finance space. It has the potential to boost the expansion of sustainable and ESG investments across multiple Islamic finance asset classes, as well as the financial industry at large.
Additionally, the similarities between the ESG and the principles of Shariah open a wider choice for investors looking for opportunities in a broader socially responsible investment space. As a result, choosing investment activities anchored on Shariah and characterized by long-term socially responsible perspectives build greater stability and ensures the socioeconomic wellbeing of our nation. This will considerably broaden the appeal for Shariah investing.
ESG investing, much like Shariah investing, promotes responsible behavior and appeals to investors seeking products that advocate ethical investing, due to the selection criteria for the underlying investments.
At Bursa Malaysia, we play a crucial role in facilitating an enabling environment to unlock sustainable investments and improve access to SRI products and services. We are committed to advancing the sustainable finance agenda and adopted a multifaceted approach to create long-lasting positive impacts on the planet and society.
Bursa Malaysia is also driving the sustainability agenda, by encouraging the adoption and integration of SRI principles in the marketplace. PLCs are required to make sustainability-related disclosures in their annual reports as required by the Main Market and ACE Market Listing Requirements, and Bursa Malaysia supports their efforts to do so through our education and promotional programs.
Overall, sustainability within the Islamic proposition brings added advantages to the economy and society through the promotion of sustainable businesses and investment activities that entail positive results with stable prospects and the welfare of societies.
Sustainable and ESG investing is evolving quickly, particularly in terms of standards and taxonomies. As a capital market regulator, how do you factor in this dynamism and how do you help formalize the regulatory environment for market participants?
In the past few years, we have observed significant advancements across the international sustainability reporting ecosystem. Some of the most influential international sustainability reporting standard-setters have either issued, or are in the midst of making, revisions to their respective standards and/or frameworks (eg GRI, SASB, TCFD) — so this space is indeed highly dynamic.
The existence of distinct standards/frameworks is deemed problematic by a large number of market participants as each has its own set of requirements. The inevitable overlapping similarities as well as differences have led to much confusion and fragmentation — especially for preparers who are faced with the prospect of having to report using multiple standards that are both complex and costly.
Separately, there are increasing calls from key capital market stakeholders (eg institutional investors) to affect some degree of comparability or standardization of sustainability disclosures to facilitate benchmarking as well as decision-making.
Responding to the stakeholders’ call, Bursa Malaysia is currently undertaking a major review of our Sustainability Reporting Framework to explore potential ways to enhance the availability, comparability as well as quality of certain sustainability-related disclosures. For instance, we intend to mandate the adoption or disclosure of certain sustainability-related themes and indicators.
What we mandate is also ‘common’ across the different international standards/frameworks in order to lessen our PLCs’ overall reporting load, while simultaneously serving as a springboard for them to work toward full adherence of the said frameworks.
On the other hand, the enhancements would also cater to the evolving informational needs of our key capital market stakeholders. This is how we can give sustainability disclosures and practice more structure and ‘formalize’ them.
As for taxonomies, we view these favorably as they generally provide clarity, consistency and also transparency on what can be classified as being green or sustainable. Taxonomies encourage standardization and facilitates decision-making, and is a key enabler for scaling up and mainstreaming green or sustainable investments that mitigates potential market fragmentation. Bursa Malaysia actively contributes to the nation’s taxonomy efforts and is currently involved in the development of the Securities Commission’s SRI Taxonomy.
Are we (in Malaysia) in a position to be able to offer a range of financial services that satisfy both ESG and Shariah compliant investors?
The globally benchmarked F4GBM Index continues to play an important role in recognizing companies that demonstrate strong ESG practices and disclosures. It recognizes PLCs that have taken steps to improve their ESG practices and disclosures. Since its launch in 2014, the Exchange continuously engages with its stakeholders to see if there is interest or a need to incorporate more SRI elements in the ESG index that can better suit our local investment landscape.
In 2021, the number of F4GBM Index constituents rose to 76 (from 69 in 2019), with 54 out of the 75 (72%) constituents being Shariah compliant, prompting Bursa Malaysia to expand its ESG and Shariah Index portfolio by launching the FTSE4Good Bursa Malaysia Shariah Index (F4GBMS) in July 2021.
This new index comprises constituents that are Shariah compliant, based on the Securities Commission Malaysia’s Shariah Advisory Council’s screening methodology, and presently contains 54 PLCs.
In terms of index performance, the two ESG indices have outperformed our benchmark FBMKLCI. For the period of the 31st December 2014 to the 31st August 2021, the F4GBM Index outperformed FBMKLCI by 1.6%, while the F4GBMS outperformed FBMKLCI by 4%.
Recognizing the synergistic potential of Shariah compliance and sustainability, the Exchange has been leveraging its insights and pioneering Islamic programs to drive sustainability alongside its market-leading ESG initiatives and embed sustainability among listed issuers as well as within the Exchange itself. This has enabled the Exchange to effectively promote ESG and Shariah investing as complementary and has put us in a unique competitive position as demanded by global funds and investors, as SRI, ethical and Shariah investing continues to grow year on year.
Our end-to-end Shariah compliant securities trading and investing platform, Bursa Malaysia-i, showed a compound annual growth rate of a 33% increase since its launch in September 2016 to the end of October 2021. This is further testament to the growing demand for Shariah compliant financial solutions, driven by the shift toward value-based investing and heightened interest in Islamic capital market products and services by non-Muslim investors and SRI investors from around the world.
Moving forward, Bursa Malaysia aims to scale up its Shariah compliant offerings through product and service innovation to create greater alignment between Shariah investing and SRI, and broaden the product range across the Islamic wealth management solutions value chain. This is also expected to spur new market segments and attract greater domestic and international participation to accelerate the growth of Shariah compliant SRI. Bursa Malaysia will continue to drive thought leadership and advocacy to promote greater alignment between Shariah and SRI.
Ultimately, our goal is to build a vibrant ecosystem of SRI- and ESG-themed investment products that fulfill investors’ needs and expectations. With this in mind, we will continually endeavor to provide a range of products and services catered to SRI. We also plan to expand our efforts to identify emerging sustainability-driven opportunities in our range of products and services to steer the capital market toward sustainable solutions and assets in the coming years.
1 MalayMail (2021) Malaysia ranks first in Islamic finance development indicator 2021 2 The Edge Markets (2021) IFDI 2021 recognition shows strength of Islamic finance in Malaysia
