On 26 November 2019, the Securities Commission Malaysia (‘SC’) released the Sustainable Responsible Investment Roadmap for the Malaysian Capital Market (‘SRI Roadmap’) and issued a booklet, Sustainable and Responsible Investment Sukuk Framework – An Overview (‘SRI Sukuk Overview’).

The SRI Roadmap seeks to create a facilitative sustainable responsible investment (‘SRI’) ecosystem and chart the role of the capital market in driving Malaysia’s sustainable development.

The SRI Roadmap is a five-year programme which identifies 20 strategic recommendations which are underpinned by the 5i-Strategy introduced by the SC in 2014. The 5i-Strategy comprises –

  1. Widening the range of SRI instruments, i.e. to facilitate the development of new SRI capital market products to widen and deepen the SRI asset classes;
  2. Increasing SRI investor base, i.e. to attract institutional and individual investors to increase the demand for SRI products;
  3. Building a strong SRI issuer base, i.e. to build a strong and diversified issuer base consisting of listed and unlisted companies and multilateral organisations;
  4. Instilling strong internal governance structure, i.e. to develop metrics and disclosures to measure sustainability in facilitating investment decisions to inculcate good governance practices in the SRI space;
  5. Designing information architecture in the SRI ecosystem, i.e. to develop platforms which provide SRI data to investors, thereby enabling better assessment of investment opportunities to ensure transparency and accessibility to the SRI market.

The SRI Roadmap sets out 20 strategic recommendations which are clustered under the relevant 5i-Strategy

Widening the range of SRI instruments

  1. Promote alignment to international standards and principles
  2. Encourage issuances of sovereign green, social or sustainability sukuk
  3. Develop SRI taxonomy for the capital market
  4. Facilitate the issuance of more SRI products

Increasing SRI investor base

  1. Enhance the role of government-linked investment companies and institutional investors in SRI
  2. Attract international investors
  3. Encourage SRI investments by retail investors
  4. Enhance investment managers’ SRI intermediation capabilities

Building a strong SRI issuer base

  1. Widen access to SRI through alternative funding avenues
  2. Support the development of an initial public offering pipeline for green and social impact companies
  3. Enhance the role of financial institutions in SRI
  4. Collaborate with multilateral development institutions

Instilling strong internal governance structure

  1. Strengthen sustainability disclosures by public listed companies
  2. Promote the adoption of sustainable business practices including disclosure among small and medium enterprises
  3. Enhance board governance on sustainability including climate risks and opportunities
  4. Enhance risk assessment and supervisory approach on SRI

Designing information architecture

  1. Enhance transparency of information on SRI products
  2. Develop ancillary services for SRI
  3. Incorporate sustainability in advisory services
  4. Accelerate promotions and profiling of Malaysia as a regional SRI centre

An immediate initiative rolled out under the SRI Roadmap are the revisions made to the requirements relating to SRI Sukuk contained in Chapter 7 of the SC’s Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework and in Chapter 20 of the SC’s Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors which took effect on the day the SRI Roadmap was launched. These revisions include aligning the eligible SRI projects with those set out in the SRI Roadmap, and setting out the key components of the SRI Framework, namely utilisation of proceeds, establishment of an internal process for evaluation and selection of eligible SRI projects, management of proceeds allocated to SRI projects; and annual reporting requirements. The revisions are summarised in the SRI Sukuk Overview.