Infrastructure conglomerate YTL Corporation, a member of Bursa Malaysia’s industry working group for the Bursa Carbon Exchange (BCX), is currently assisting in the development of seven carbon credit projects in Southeast Asia in addition to several early-stage projects, ISFI has learned.
In an interview with ISFI, Ralph Dixon, the executive director of sustainability at YTL, also confirmed that the use of carbon credits as underlying assets for Islamic finance transactions is part of Bursa Malaysia’s roadmap for the BCX.
Currently, YTL, via the industry working group, is assisting companies to develop additional products to meet their carbon goals.
“We are really trying to look at how the exchange caters to solving the demands of those different stakeholders in the ecosystem to ensure that there’s sufficient supply and sufficient demand and, of course, a vibrant exchange for both renewable certificates as well as carbon credits,” Ralph, who is also CEO of YTL-SV Carbon, shared.
Challenging for the BCX
The BCX, a Bursa Malaysia initiative to promote the development of Malaysia-generated carbon credits, is operating in a challenging environment due to changing regulations as well as the Verra project registration backlog.
According to Ralph, the processing time for the Verra backlog resulted in no small part to the BCX’s inaugural auction not including a Malaysia-generated carbon credit project, which is also why YTL did not participate in the auction.
To recap, the BCX’s inaugural carbon auction was initially slated to take place last December but it was postponed to March 2023. According to Ralph, the auction was delayed in the hopes to include a verified Malaysia-generated carbon credit project, which did not happen.
The introduction of new regulations and requirements have also narrowed the scope of what constitutes a carbon credit. According to Ralph, several of the projects YTL was developing in the past were methane avoidance projects, which are now no longer permitted due to new mandatory requirements for the palm oil mill effluent treatment process.
“A lot of these avoidance projects in the past have been centered around the palm oil industry because they were to do with methane avoidance from the palm oil mill effluent. That has now become a mandatory activity for new mills, so you can no longer receive carbon credits,’ Ralph explained.
While the stricter requirements in polluting industries and the top-down approach contribute to sustainable development, they also limit the role voluntary carbon markets (VCMs) can play.
Gazetting land by central authorities can pose a similar challenge by inhibiting the ability for project developers to register the project as a carbon credit, thereby putting the onus of responsibility on the government, Ralph noted.
According to Ralph, the BCX presents an opportunity for the Islamic and conventional finance space, referencing its MoU with CIMB Group to collaborate on carbon-related projects and provide solutions and financing for carbon emissions-reducing projects.
Ralph believes that Malaysian banks and financial institutions have a head start in the sustainable finance space and sees no reason why Bursa Malaysia, financial institutions and ecosystem players cannot work together to develop the sector, especially considering Malaysia’s leadership in Islamic finance.
This is an excerpt of an interview with YTL Corporation’s Ralph Dixon on the Malaysian VCM space including challenges and opportunities for Islamic finance. To listen to the full discussion, log on to IFN OnAir.