Sustainable and responsible investing (SRI), as an investment criteria to investors is increasing each year given the current trends in supporting projects that are environmental friendly and socially impactful. Malaysia is known for its globally recognised leader in Islamic finance with their market share of this segment being the largest in the world. Many other jurisdictions are now taking steps toward encouraging responsible investing and much of this is due to the commonalities between SRI and Islamic finance principles.
Initiatives to increase awareness on SRI have already been initiated and more will be coming up in the near future. One of the initiatives taken to support SRI in Malaysia was, Securities Commission Malaysia (SC) and Bursa Malaysia’s Responsible Investment Forum in Kuala Lumpur on 14th July 2017, an event which was organised in association with the UN-supported Principles of Responsible Investment (PRI).
The Global Sustainable Investment Review 2016 reported that Malaysia has a 30 per cent share in Asia (ex Japan), making Malaysia the largest SRI market holder in the Asian region, since SRI recognises the shariah-compliant instruments that Malaysia already has in issue. Also, the value of professionally managed responsible assets globally has reached USD$22.89 trillion, an increase of 25 per cent in two years, 2014 to 2016.
Due to similar characteristics between SRI and Islamic finance, Malaysia decided to recognise its common ground in its responsible investments development with a shariah-compliant SRI segment through specific initiatives including the formulation of the SRI sukuk framework by the SC in 2014. Moreover, the SC is currently in the works of launching a new SRI investment funds framework, as part of SC’s initiative to develop and facilitate the establishment of an ecosystem favourable for SRI stakeholders.
“To seek new growth drivers and also capitalise on the similarities, the SC continues to facilitate the 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. Recent initiatives include the Islamic fund and Wealth Management Blueprint as well as the SRI Sukuk Framework” said Zainal Izlan Zainal Abidin, Managing Director, Development & Islamic Markets of SC during his opening remarks at the forum.
In line with the current climate condition, entities and also individuals are all looking to make their investment decisions that have good environmental and societal impact. Furthermore, an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.
PRI has been supported by the United Nations (UN) since their launch a decade ago, and works closely with its international network of signatories to put their six Principles for Responsible Investment into practice. Its goals are to understand the investment implications of environmental, social and governance (ESG) issues and to support signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole.
The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice. The Principles were developed by investors, for investors. In implementing them, signatories contribute to developing a more sustainable global financial system.
Below are the following six principles for Responsible Investment:
- To incorporate ESG issues into investment analysis and decision-making processes
- To be active owners and incorporate ESG issues into our ownership policies and practices
- To seek appropriate disclosure on ESG issues by the entities in which we invest
- To promote acceptance and implementation of the Principles within the investment industry.
- To work together to enhance our effectiveness in implementing the Principles
- To report on our activities and progress towards implementing the Principles