Securities Commission, Bursa Malaysia push for responsible investment

The Securities Commission Malaysia (SC) and Bursa Malaysia jointly hosted the Responsible Investment Forum here today.

The event was organized by the United Nations’ (UN) backed organization – the Principles for Responsible Investment (PRI) group.

All three parties – SC, Bursa, and PRI – see this event as key to the initiatives to generate greater awareness on responsible investing.

The forum attracted over 200 attendees, and offers actionable information by stakeholders including capital market regulators to further aid in better understanding ESG issues.

Malaysia is globally known as the premier Islamic finance market, and is currently taking the lead in promoting sustainable and responsible investing (SRI) proposition based on its shared values with Islamic finance.

SC managing director Zainal Izlan Zainal Abidin said the increasing awareness and demand for sustainable and responsible investing globally is creating significant opportunities for further Islamic finance growth.

“There is a commonality in the principles and values of both (SRI and Islamic finance) segments” he added.

Experts and stakeholders giving local perspectives on environmental, social and governance practices at Responsible Investment Forum KL, co-hosted by Securities Commission Malaysia and Bursa Malaysia. (From left) Panellists are: Moderator - Martin Skancke, Chair, PRI, Yew Yee Tee, Chief Regulatory Officer, Bursa Malaysia, Zainal Izlan Zainal Abidin, Managing Director of Development & Islamic Markets, SC Ahmad Zulqarnain Onn, Head of Strategy & Executive Director for Investments, Khazanah Nasional Berhad Promod Dass, Deputy Chief Executive Officer, RAM Ratings

Zainal, who is the MD of Development & Islamic Markets of the SC also added that SC continues to facilitate development of products and services that meet the requirements of both SRI and Islamic finance to ensure the capital market serves the needs of investors and issuers (alike)”.

According to the SC, global SRI assets have increase 25 percent over the two years from 2014 to 2016. This makes SRI assets between the two period totaling to US$ 22.9 trillion.

The Global Sustainable Investment Review 2016 reported that Malaysia with 30% share in Asia, excluding that of Japan, forms the largest SRI market in the region. This is largely because Malaysia recognizes Shariah-compliant funds as part of the SRI universe.

Taking Islamic finance is a subset of SRI is a technical definition used by the SC. And while this technical definition has attracted some criticisms from the market, these critics have not yet been able to form concrete arguments against Islamic finance as being as a subset of SRI.

The Islamic capital market has been under fire of late following the lack of clarity in jurisdiction in regulating international Islamic finance papers, particularly that of Islamic debt papers. The Dana Gas sukuk non-shariah compliant paper has cast a damaging light into the lack of jurisdiction in the market in regulating Islamic sukuk internationally.

Astro AWANI discussed at length on the Dana Gas issue on Markets Today.

Malaysia however is the exception to this issue, since Malaysia presents an extremely clear jurisdiction on regulating the Islamic financial market.

Because of this, it presents an opportunity for international investors to view Malaysia as the premier spot to do not just Islamic finance dealings, but also SRI investments as well.

According to Hasif Murad, Investment Manager at Aberdeen Islamic Asset Management, “Malaysia is not a dollar bond premier market, but it is still an attractive sukuk market for the ringgit business since Malaysia presents a clear jurisdiction with tried and tested court cases to test the jurisdiction and legality of any Islamic papers”.

“Because of the legal clarity, Malaysia may present itself as an interesting dollar sukuk market in the future” he added.

Malaysia has pioneered the development of the Shariah-compliant SRI segment through the SRI Sukuk framework by the SC in 2014. Since then, the SC has been continuously developing more SRI investment funds and these initiatives form part of SC’s developmental agenda under the leadership of the SC Chairman, Tan Sri Ranjit Singh.

Collectively, the SRI agenda has also been championed by Bursa Malaysia to spearhead the equity capital markets in particular. Bursa has launched the FTSE4Good Bursa Malaysia Index in December 2014.

The FTSE4Good index is aimed at showcasing key companies with strong Environmental, Social and Governance (ESG) practices.

Those companies with strong ESG practices could potentially have a greater visibility amongst investors that are interested in the SRI space.

According to Bursa Malaysia, through a statement jointly issued with SC today, the internationally benchmarked FTSE4Good index was the first ESG index launched in Asia and has grown to comprise 43 companies now, from the initial 24 constituents when it was first launched in 2014.

Bursa Malaysia Chief Executive Officer, Datuk Seri Tajuddin Atan said at the forum “Bursa Malaysia believes that there is a strong value proposition for companies to adopt sustainability in a meaningful manner”.

He also says that “Bursa Malaysia sets a win-win situation for key players across the value chain for our listed issuers and investors”.

Also speaking at the forum is PRI Board Chairperson, Martin Skancke. He says that “with interest in the ESG growing rapidly, (this forum) provides an opportunity for investors to build their knowledge and awareness of responsible investment and enables them to explore drivers, trends and practices”.

“PRI’s core mission is to promote responsible investing and encourage more widespread ESG integration” he added.

The United Nation’s backed body – PRI – works with international network of signatories to put the six Principles for Responsible Investment into practice. These Principles are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice.

Astro AWANI will interview PRI Chairperson, Martin Skancke on Markets Today live on Astro AWANI this Monday, 17 July, at 5.45pm. Catch the repeats at 11.15pm same day. The interview will also be made available online on Astro AWANI’s YouTube channel and website.