Malaysia leads in sustainable and responsible investing (SRI) sukuk issuance among the ASEAN6 countries, accounting for US$3.9 billion of issuance value or 56% of the total ASEAN SRI sukuk issuance, as of November 2021. This is according to Trending: Sustainable Responsible Investment in Malaysia and the Region, a research publication released by Ernst & Young Consulting Sdn Bhd (“EY Malaysia”) and Capital Markets Malaysia (CMM)’s Sustainable Investment Platform (SIP) on the growth trend of sustainable and responsible investing (SRI) in Malaysia and its five ASEAN neighbours, i.e., Indonesia, the Philippines, Singapore, Thailand and Vietnam (collectively, the ASEAN6 countries). The publication offers insights into how the ASEAN6 countries are embracing SRI and environmental, social and governance (ESG) practices amid the evolving global finance and investment landscape, and are supported by their respective national policies.
Developments in the SRI arena have catalysed the exponential growth of ASEAN sustainable bonds and sukuk. Between 2016 to 2020, the ASEAN6 markets saw significant increases, at 198% CAGR, in sustainable bonds and sukuk issuance for financing growth aligned with ESG principles, with an issuance value estimated to have reached US$29.8billion as of November 2021. Correspondingly, sustainability-themed Shariah-compliant sukuk grew exponentially higher, at 278% CAGR, and is estimated to have reached US$7billion in November 2021.
Dato’ Abdul Rauf Rashid, Malaysia Managing Partner, Ernst & Young PLT said, “We are seeing Malaysian corporates and organisations, along with their ASEAN peers, significantly stepping up their adoption of ESG strategies and practices. These actions will enhance their resilience and long-term sustainability.”
Progressive actions in alignment with global sustainability initiatives augur well for the region’s future SRI growth
ASEAN6 regulatory authorities are developing policies and action plans in line with global policy developments and initiatives to achieve the Sustainable Development Agenda by 2030. These include sustainable agendas/green plans, sustainable investment, power or energy development plans and climate change adaptation or mitigation plans. The ASEAN6 stock exchanges are progressively adopting SRI and ESG practices, in tandem with these developments. Further, ASEAN6 stock exchanges require public listed companies to submit ESG disclosure information and most of them have launched sustainability-equity indices as a transparent platform for investors to track the performance of companies with good ESG practices.
While the maturity of the SRI markets in the respective countries vary, efforts by the ASEAN6 countries to step up on ESG policies and formulate action plans are encouraging the development of conducive green-focused ecosystems, with tremendous investment and business opportunities and bright prospects for the region’s SRI growth. Currently, over two-thirds (68%) of the total ASEAN6 bonds and sukuk are focused on investments in three key sectors, namely energy (49%), green buildings (10%) and transportation (9%). By 2030, the ASEAN green/low-carbon economy is estimated to provide potential annual business opportunities of nearly US$1trillion. Meanwhile, the region’s renewable energy sector is anticipated to attract an average investment of US$50billion per annum from 2025 to 2030.
Lya Rahman, chairperson of the SIP’s steering committee, remarked, “The swift growth of ASEAN sustainable bonds and sukuk, coupled with the growing focus on the green sector, underscores ASEAN6’s firm commitment to the fulfilment of the global sustainable agenda by 2030. Growth prospects are bright given investors’ increasing demand for sustainability-themed products, particularly with rising concerns on the impact of climate change. Malaysia’s focused efforts in this investment area are poised to maintain its growth trajectory in sustainable sukuk issuance.”
The SIP had been jointly established by CMM and the Institutional Investors Council Malaysia, to support institutional investors and the fund management industry in building the depth of SRI strategies which align financial returns with broader ESG priorities. Besides offering a common platform to accentuate the impact and visibility of sustainable investors, the SIP will also cultivate stakeholders’ capacity for data collection, tools and methodologies that will support innovation in sustainable investment strategies.