In conjunction with the International Greentech & Eco Products Exhibition & Conference, Capital Markets Malaysia organised a half-day event entitled the Green Finance Forum: Funding Green Projects through the Islamic Capital Markets. The forum, held at the KLCC Convention Centre was attended by 250 potential fundraisers and financial intermediaries exploring the funding options offered by the Islamic capital markets.
Delegates were welcomed by Datuk Zainal Izlan Zainal Abidin, Chief Executive of the Securities Commission Malaysia (SC), who set the scene for the day with an overview of the current funding environment and the SC’s ongoing advocacy of the Islamic capital markets as a funding mechanism for green projects. Datuk Izlan reiterated the country’s support towards achieving the UN’s Sustainable Development Goals (SDGs), and the role that the Islamic capital markets can play in funding these projects. Studies have shown that between five to seven million dollars per annum will be required to achieve the SDGs. In Asia alone, 26 trillion dollars will be required to fund green projects up till 2030. According to data from the Climate Bonds Initiative indicates that a total of US$ 155 billion of financing of was raised via green bonds in 2017, which was a 78% increase over the previous year. With its leadership position in the Islamic capital market, and the SC’s role in facilitating green sukuk issuances under the Sustainable Responsible Investment Sukuk Framework, Malaysia currently has five green issuances under its belt totaling RM 3.7 billion. Datuk Izlan emphasised that the capital markets industry must look at how Malaysia can play a role in the global development of green financing, as we have significant potential to contribute towards the development of the green economy through the funding of projects via green sukuk.
Session 1: Funding Green Projects in the Current Environment
A look at how the new economic and regulatory landscape in Malaysia will influence the funding of green projects. What policies and incentives are likely to impact the green sector and how will they further promote industry growth?
- Government’s view on green and climate change and financing initiatives/ scheme
- Key growth sectors
- Incentives that exist to support demand of and supply for green projects
Rozani Osman, Financial Sector Specialist, The World Bank
Zalina Shamsudin, Head of Strategy & Business Development, Capital Markets Malaysia
Wei Yuan, Asia Program Co-lead, Environmental & Social Risk Management for Financial Institutions Advisory; Asia Coordinator, Sustainable Banking Network, International Finance Corporation
Shahzul Jayawirawan Mohd Yunus, Deputy Director, Green Technology Division, Malaysian Investment Development Authority (MIDA)
Syed Ahmad Syed Mustafa, Chief Operating Officer, Greentech Malaysia
The first panel session of the day discussed the Funding of Green Projects in the Current Environment. Shahzul Jayawirawan discussed MIDA’s role in providing incentives for green technology. The Green Technology incentive covers a broad scope of sectors including building, transportation, integrated waste management and green support services. Shahzul also explained that there is an investment tax allowance for eligible companies. MIDA undertakes continuous engagement and support services to companies seeking to undertake investments in green projects.
Wei Yuan explained the IFC’s role in supporting the emerging markets in the growth of ESG through the Sustainable Banking Network. A key takeaway from Wei is the crucial need for collaboration and learning in order for the industry to grow.
Zalina Shamsudin from Capital Markets Malaysia discussed CMM’s focus on sustainability and sustainable financing as a priority given the SC’s findings that Sustainable and Responsible Investment will be a key economic driver for the development of the Islamic capital markets globally. CMM advocates the use of Islamic finance as a viable funding mechanism for green projects and investments. Zalina expressed that there is a need to engage not just the issuers, but also all intermediaries in our collective bid to grow the industry. Zalina provided input on CMM’s Green Sukuk Grant which offsets up to 90% of the cost of a second opinion report for green sukuk projects.
Syed Ahmad (Greentech Malaysia) explained the entire ecosystem of human capital development services (through certification), incentives, guarantee scheme and eco labelling administered by Greentech and its partner organizations. In encouraging green procurement, Greentech also provides a listing and directory of service providers in the green technology space. Syed also shed some light of the Green Technology Financing Scheme, a guarantee cheme provided by the government to support companies embarking on green technology projects. A key takeaway from Syed is that banks and financial institutions have a big role to play, urging banks to set up a Green Desk to facilitate the financing of green projects.
Rozani Osman (World Bank) wrapped up the session emphasizing that it is important that environmental risk be factored into green finance instruments, and expressing that for green finance to develop, countries must develop their capital markets before green bonds can take off.
Overall, the panelists agree that there is a need to educate the entire value chain as we progress towards achieving sustainability in investment and financing and collaboration across agencies is key to achieving our common goals.
Session 2: Financing Via Green Bonds and Sukuk: An Issuer’s Roadmap
An in depth discussion on utilizing green bonds and sukuk as a financing mechanism
Nick Harris , Sector Lead, Financial & Professional Services, Carbon Trust
Edward Ng, Partner, Adnan, Sundra & Low
Juniza Zahari, Director, Debt & Capital Markets, Affin Hwang Investment Bank
Harald Lund, Head of Second Opinions, Centre for International Climate Research (CICERO)
Chong Van Nee, Co-Head, Infrastructure & Utilities Ratings, RAM Ratings
The second panel session was highly interactive with a panel of industry experts representing the entire green sukuk supply chain. The session began with Juniza Zahari (Affin Hwang) giving a succinct overview of the roles of the various parties in a green sukuk transaction and the recent transactions in Malaysia todate, and providing useful guidance on the common questions asked by issuers during the process of raising financing via green sukuk. Juniza explained that the benefits of issuing a sukuk include the stamp duty exemptions and the fact that issuers can procure long term funding instead of relying on bank loans. A downside mentioned by Juniza is that to be funded by sukuk, the size of the project would have to be around 50Mw.
Chong Van Nee (RAM Ratings) provided an in-depth view of the ratings process and methodology used in assessing green projects and the various issues that issuers typically face. Van Nee went on to provide a case study on the rating of Tadau Energy highlighting common issues facing fundraisers in the green projects segment.
Harald Lund (CICERO) described the process of issuing second opinions, providing an overview of their methodology, called Shades of Green. Harald also explained that the universe of what constitutes ‘green’ is broad drawing from the example of the Republic of Indonesia green sukuk where the country had a project category called ‘green tourism. Guidance for what would constitute green, while not exhaustive, can be found in the Green Bond Principles documentation.
Edward Ng (Adnan Sundra & Low) provided in-depth guidance on the legal process, timeframes, regulatory approvals (LOLA) and documentation required. Edward went further to provide information on parts of Malaysian Land Code pertinent to issuers, and discuss common legal issues faced by potential issuers.
Overall, the intermediaries on the panel agree that while the industry is nascent and we are at the early stages, there is much potential for the financing of green projects, with many projects in the pipeline and four of the existing sukuk trading at a premium, which bodes very well for the industry as a whole.