Sustainable and Responsible Investment (SRI) Sukuk Framework
There has been a growing interest in the global market towards SRI instruments, and the interest is also shared by the Sukuk market, marked by several initiatives and Government supports to promote the idea of SRI Sukuk or Green Sukuk.
In 2014, the SRI Sukuk Framework was introduced by the SC to facilitate the creation of an ecosystem that promotes sustainable and responsible investing for SRI investors and issuers. In 2019, the SRI Sukuk Framework was revised to enhance the disclosure standards, reporting requirements, as well as clarification on the role of external reviewers to further align the SC’s requirements with internationally accepted principles and best practices that emphasize the importance of transparency in respect of disclosure requirements. As of December 2019, 10 SRI Sukuk have been issued in Malaysia amounting to RM4.77 billion.
In Malaysia, the SRI Sukuk looks promising and is expected to grow in the coming years to support more environmentally sustainable infrastructure projects. This growth opportunity can further strengthen Malaysia’s position as the main catalyst for Shariah-compliant Green SRI Sukuk.
| SRI Sukuk Framework | |
|---|---|
|
Issuer |
Government, Special Projects, Corporate in Malaysia |
|
Geographical scope |
Malaysia |
|
Eligible projects |
|
|
Projects excluded |
Limited available information |
|
Reporting |
An issuer must update the Sukuk holders annually through a designated website |
|
External review |
External review is recommended. If an external reviewer is appointed, such external reviewer’s report must be made available on the designated website. |
Key Components of SRI Sukuk Framework
The key components of the SRI Sukuk Framework are:
- Utilization of Proceeds – The proceeds raised from the issuance of the SRI Sukuk are utilized only to fund any activities or transactions relating to the eligible SRI projects.
- Process for project evaluation and selection –An internal process is established to evaluate and select the eligible SRI projects.
- Management of Proceeds – The proceeds allocated for the eligible SRI projects are credited in a designated account or otherwise tracked in an appropriate manner.
- Reporting – An annual report on the following must be done;
- The original amount allocated for the eligible SRI projects;
- Amount utilized for the eligible SRI projects;
- The unutilized amount and where such unutilized amount is placed or invested pending utilization; and
- List of eligible SRI projects in which the proceeds have been allocated to, as well as a brief description of the said eligible SRI projects, and their impact or expected impact.
Eligible SRI Sukuk Projects
The eligible SRI Sukuk projects may include Green projects, Social projects, a combination of Green and Social projects, and Waqf projects that relate to the development of Waqf properties or assets.
These projects must seek to achieve any one or a combination of the following objectives:
- Preserving and protecting the environment and natural resources;
- Conserving the use of energy;
- Promoting the use of renewable energy;
- Reducing greenhouse gas emission;
- Addressing or mitigating a specific social issue or seeking to achieve positive social outcomes especially but not exclusively for a target population. Examples of target populations include, but not limited to the following:
Living below the poverty line; Excluded and/or marginalised populations and/or communities; Vulnerable groups as a result of natural disasters; People with disabilities; Migrants and/or displaced persons; Undereducated; Underserved, owing to lack of quality access to essential goods and services; or Unemployed
- Improving the quality of life in society.
Types of eligible SRI Sukuk projects may include, but not limited to the following:
