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Friday, September 30, 2022

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Malaysian regulators launch joint sustainable finance landscape report to accelerate industry response to climate change

Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC) have jointly launched the report on the sustainable finance landscape in Malaysia under the Joint Committee on Climate Change (JC3) to accelerate the financial sector’s response to climate change. The report highlights the underserved sustainable finance market and the role Islamic sustainable products have played in its development.

“Financial institutions are initiating steps to embed climate risk in their strategy and risk management framework and are making considerable progress in committing to net zero targets. There is also an increasing supply of green financial and investment products in the market. In driving the sustainability agenda, the top three challenges identified in the report are poor data quality and availability, lack of incentives and low awareness of green finance solutions in the market. Cohesive efforts are required in addressing these challenges to accelerate the pace of transition and support an orderly transition to net zero,” Zainal Izlan Zainal Abidin, the deputy chief executive of the SC and co-chair of JC3, shared.

The main issues highlighted in the report are a lack of sustainable products in the Malaysian market and a lack of robust sustainability reporting standards and methodology.

Some key statistics are the following:

  1. About 67% of respondents agreed that there is an inadequate number of green/sustainable financial products in the local market.
  2. 92% plan to increase the number of sustainability products in the future.
  3. Only 50% of the respondents said that they have established a methodology to identify customers who are more susceptible to climate change.
  4. When asked if the financial institutions have third-party verification on their sustainability reporting process, only 21% stated that they have conducted independent assurance assessment.

While sustainable products are increasing in the Malaysian market, it is still an underserved market. As at the 31st December 2021, there were 34 sustainable and responsible investment (SRI) funds offered in Malaysia, comprising 22 unit trust funds and 12 wholesale funds with a total net asset value of RM5.07 billion (US$1.16 billion). Sixteen out of the 34 SRI funds are Shariah compliant. Regulation has played a key role in the development of sustainable products in the Malaysian market. The report credits the development of sustainable products in the Islamic space to the SRI Sukuk Framework launched in 2014 and the Waqf-Featured Fund Framework issued in 2020. Since its launch, four Waqf-featured funds have been issued under the framework.

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