RAM Ratings sees Malaysia as a leading and sustainable green finance centre, based on the country’s solid foundation of more than 3 decades’ well-orchestrated government and regulatory initiatives.
“Green finance is akin to icing on Malaysia’s bond market cake,” Promod Dass, Deputy CEO of RAM Ratings, highlighted during the Emerging Markets Green Bond Development panel discussion at the Climate Bonds Initiative’s 2018 Annual Conference, held in London recently.
As at end-2017, Malaysia’s bond market as a proportion of GDP – a good measure of relative size – was the third largest in Asia after Japan and South Korea, based on data from Asian Development Bank (ADB).
The country’s corporate bonds as a proportion of the entire bond market – another notable measure of market development – stood at 48 per cent (based on ADB data) ranks it second after South Korea’s 59 per cent. Malaysia also has the distinction of being the world’s largest sukuk market.
“During the Roundtable on Mobilising Financial Centres for Green Bonds – Where to next?, Promod remarked, “It is important to establish a vibrant bond market as a cornerstone, so that a sustainable green bond market can be rapidly built upon it. Malaysia is such an example.”
“Malaysia’s well-regulated US$318 billion bond and sukuk market shows ample domestic capacity and capability.
It has a diverse range of issuers, well-heeled institutional investors, banks, credit rating agencies, a bond pricing agency and a financial guarantee institution as well as other relevant service providers.
“This allows both domestic and foreign issuers to viably tap ringgit long-term funds.
“The convergence of responsible, green and Islamic finance is a sweet spot for Malaysia,” highlighted Promod.
Malaysia is committed to the United Nations’ (UN) Sustainable Development Goals and is also party to tackling climate change as a Paris Agreement signatory.
Chapter 6: Pursuing Green Growth for Sustainability and Resilience of the 11th Malaysia Plan (2016-2020) articulates Malaysia’s green strategy. In this context, Securities Commission Malaysia’s (SC) Sustainable and Responsible Investment (SRI) Sukuk Framework – issued in 2014 – has paved the way for the bond market.
The government’s strategic investment fund, Khazanah Nasional Berhad, took the lead in 2015 and pioneered the RAM-rated Sukuk Ihsan (the world’s first SRI sukuk). The Malaysian stock exchange – Bursa Malaysia, a member of the Sustainable Stock Exchanges Initiative – established the FTSE4Good Bursa Malaysia Index in 2014.
In another progressive step, all listed companies in Bursa Malaysia are required to include sustainability disclosures in annual reports on a staggered basis spanning the 2016-2018 period according to the company’s market capitalisation. All these measures have primed the corporate sector for the green finance evolution.
The SC played a key role in the establishment of the ASEAN Green Bonds Standards (issued on 8 November 2017), through the ASEAN Capital Market Forum’s collaboration with the International Capital Market Association.
Meanwhile, Bank Negara Malaysia (BNM) has also detailed strategies to strengthen the roles and impact of Islamic banking institutions in a sustainable financial ecosystem. BNM had guided the sector through its Strategy Paper on Value-based Intermediation (published on 20 July 2017); this was finalised on 22 March 2018.
To spur the green market, the Malaysian government has also introduced tax incentives, the Green Technology Financing Scheme and the Green SRI Sukuk Grant Scheme. In January 2017, the World Bank, BNM and the SC formed a Technical Working Group to accelerate Malaysia’s green finance thrust.