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Companies, regulatory bodies and local policymakers are developing initiatives to support and incentivise investments in projects with sustainability objectives.

On a regional level, several ASEAN Member States (AMS) have participated in various international initiatives related to sustainable finance. This demonstrates an interest to promote the development of sustainable finance in line with international practices. The Securities Commission of Malaysia (SC), Bursa Malaysia, Monetary Authority of Singapore and Singapore Exchange Limited are supporting the Task Force on Climate-related Financial Disclosures (TCFD) which aims to provide voluntary, consistent climate-related financial risk disclosures for use by companies.

Central banks from the four AMS – Indonesia, Malaysia, Singapore and Thailand – are part of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) which objective is to enhance the role of the financial system to manage risks better and mobilise capital for green and low-carbon investments in the broader context of environmentally sustainable development.

In Malaysia, Bank Negara Malaysia (BNM) and the SC are taking action to support the management of climate-related risks in the financial sector. In September 2019, they jointly established the Joint Committee on Climate Change (JC3) with representation from 20 industry players to pursue collaborative actions for building climate resilience in the Malaysian financial sector. The JC3 will be guided by three key mandates — building capacity through sharing of knowledge, expertise and best practices in assessing and managing climate-related risks; identifying issues, challenges and priorities facing the financial sector in managing the transition towards a low carbon economy, and facilitating collaboration between stakeholders in advancing coordinated solutions to address arising challenges and issue. To take the agenda forward, the JC3 has established four sub-committees focusing on risk management, governance and disclosure, product and innovation, and engagement and capacity building.

The SC has been playing a pivotal role in supporting the development of sustainable and responsible investments in Malaysia. In November 2019, the SC issued the Sustainable and Responsible Investment Roadmap, which aims to facilitate the sustainable finance ecosystem and outline the role of the capital market in driving Malaysia’s sustainable development. The five-year roadmap identified 20 recommendations which are mapped to five overarching strategies aimed at driving a vibrant SRI ecosystem for Malaysia as well as for the region. These include widening the range of SRI instruments, increasing SRI investor base, building a strong SRI issuer base, instilling influential internal governance culture, and designing information architecture in the SRI ecosystem. To support the growth of SRI funds, the SC also released Guidelines on SRI Funds enabling funds to be designated as SRI funds and introduced tax exemption on management fees received for the management of SRI funds from the year of assessment 2018 to 2023.

A key priority for Capital Markets Malaysia (CMM), an affiliate of the SC, over the next three (3) years (2020 – 2022) is executing initiatives to maintain Malaysia’s global leadership in Islamic Capital Markets by leveraging on sustainable and responsible investments. In January 2020, CMM and Global Compact Network Malaysia, the local network of the United Nations (“UN”) Global Compact have jointly launched the Global Compact Network Malaysia Centre of Excellence (CoE). The purpose of the CoE is to build up sustainable practices amongst private sector companies and to ensure how these companies raise financing is sustainable.

On the banking front, BNM encourages Islamic banking institutions (IBIs) to adopt a value-based system to create positive social impacts. In October 2018, BNM released guidance documents to help IBIs with the implementation of Value-based Intermediation (VBI) which is defined as an “intermediation function that aims to deliver the intended outcomes of Shariah through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment, consistent with the shareholders’ sustainable returns and long-term interests.”

While VBI shares similarities with ESG, SRI and ethical finance, it relies on Shariah to determine its underlying values, moral compass and priorities. In November 2019, the “Value-based Intermediation Financing and Investment Impact Assessment Framework – Guidance Document” (VBIAF) was introduced to guide the implementation of an impact-based risk management system. The VBIAF also serves as a reference for other financial institutions intending to incorporate ESG risk considerations in their risk management system.