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Thursday, May 30, 2024

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Malaysia launches SRI Taxonomy; more guidelines to come

The Securities Commission Malaysia (SC) has launched the Principles-Based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market (SRI Taxonomy) as part of its efforts to advance the country’s climate and sustainability agenda. 

“The global expansion of sustainable investments has created demand for additional clarity and assistance for market players in identifying economic activities that are aligned with environmental, social and sustainability objectives,” SC Chairman Dr Awang Adek Hussin commented. 

The SRI Taxonomy aims to provide clarity and enable consistent classification and identification of sustainable investments in addition to addressing concerns with regard to the need to manage the risk of greenwashing claims. 

“This taxonomy can also assist other countries facing similar challenges in shifting or transitioning toward socially responsible investments and a just climate transition,” said Yasuhiko Matsuda, the World Bank country manager for Malaysia, which collaborated with the SC to develop the taxonomy. 

In addition to environmental and sustainability components, the voluntary taxonomy includes a social component. According to the documentation, the social component was included considering Malaysia’s leadership in Islamic finance and the alignment of Islamic finance with social and ethical investing. 

The SC released the public consultation paper for the SRI Taxonomy on the 17th December 2021, just shy of a year before the launch of the taxonomy, with the public consultation closing on the 31st March 2022. 

The public consultation paper’s dedicated chapter titled ‘Principles for Financing a Credible Transition’ was not included as a chapter in the newly published taxonomy. Instead, the section on transition financing was incorporated as an appendix as a guidance tool to those seeking to access transition finance. 

In the next phase of development of the taxonomy, the SC plans to provide more granular and detailed guidance in terms of thresholds, metrics, indicators, targets for key economic sectors consistent with national policies and targets. It may also consider further guidance on specific industrial classification system to be used by users when it comes to disclosing data on economic activities.  

The plus standard SC is considering for the taxonomy will provide additional guidance in the form of quantitative thresholds and/or metrics for capital market constituents to further identify and benchmark eligible green, social and sustainable activities and investments. 

The taxonomy was developed as a joint effort between the SC and the finance industry through collaborating with an industry working group comprising the World Bank Group’s Inclusive Growth and Sustainable Finance Hub in Malaysia as the lead technical expert as well as sustainable finance expert representatives from the Malaysian stock exchange, asset and fund management companies, investment banks and asset owners, among others. 

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