KUALA LUMPUR: The Malaysian capital market is well-positioned to facilitate sustainable economic activities and business practices to help building a more inclusive and sustainable nation.
The Securities Commission (SC) chairman Datuk Syed Zaid Albar said the capital market's foundational role would make it an effective platform for driving long-term sustainable change.
He said the corporate sector can also set the tone from the top and institute best practices to ensure sustainability and the capacity to secure long-term value for all stakeholders.
"As an integral part of the modern economy, the corporate sector must play its role – to drive transformational change with clear and achievable net-zero goals in place.
"It serves as the economy's central nervous system, directing resources to growth areas and redistributing economic gains to savers," he said at the Environment, Social and Governance (ESG) Corporate Summit - Driving Sustainability and Sustainable Transformation", here today.
Syed Zaid said sustainability was not about saving the planet but rather saving mankind and its future, while aiming for social equity to ensure that no one is left behind and progress towards a net-zero future.
He pointed out that the World Economic Forum Global Risk Perception had identified climate action failure, extreme weather and biodiversity loss as the three most severe risks for the next decade.
"We also acknowledge that for a successful net-zero transition, businesses will require significant financing to decarbonise.
"The SC is working to introduce market-based instruments to enable transition finance in Malaysia, thereby broadening financing options for companies at various stages of their sustainability journey," he said.
As sustainable finance becomes more mainstream, he said a credible and transparent common language on sustainability is required.
"This addresses the risk of greenwashing. A sustainable finance taxonomy is one tool for defining what constitutes sustainable economic activities.
Syed Zaid said enabling greater transparency and clarity on issuer-level transition pathways could be another critical building block for a sustainable transformation.
"We need to identify, assess and measure the decarbonisation strategies of companies. Having robust sustainability reporting standards is a good place to start."
He said there were strong calls for a globally consistent, comparable and reliable sustainability reporting framework – one that would both improve transparency and reduce the level of complexity in sustainability reporting.
The SC began its journey to drive sustainable investments in 2014 by introducing the SRI Sukuk Framework.
To date, a total of RM8.3 billion has been issued under the SRI Sukuk Framework 1, said Syed Zaid, adding that the funds raised were used to finance various green, social, and sustainable projects, including renewable energy, quality education and affordable housing.
Meanwhile, the SC has introduced third Capital Market Masterplan (CMP3), aimed at shaping a stakeholder economy through two key growth pillars: Sustainable and Responsible Investments (SRI) and the Islamic Capital Market (ICM).
The CMP3 emphasises the importance of the Malaysian capital market shifting its focus to long-term value creation and consider the needs of a broader group of stakeholders.
Syed Zaid said the SC's aspirations for Malaysia to be a regional SRI centre needs to be accompanied by strong local corporate leadership.
"Far too often, ESG discussions focus on the "E" or "S" pillars. We must recognise that the "G", or good Governance, is equally critical. In fact, without good governance, the "E" and the "S" may fail too.
To facilitate this, he said the SC had updated the Malaysian Code on Corporate Governance (MCCG) last year to strengthen board leadership and oversight of sustainability.
However, he said the shift towards reliable environmental and sustainability risk reporting, full adoption of MCCG 2021 would require board buy-in.
"The bar is rising. Companies are now assessed on how they handle environmental and social issues related to their businesses."
Given the multiplicity of international sustainable frameworks, he said the IOSCO had published a detailed analysis of disclosure issues confronting both issuers and asset managers, as well as its assessment of sustainability data and ratings.
"Hence, we welcome IFRS Foundation's announcement at COP26 last year to establish the International Sustainability Standards Board (ISSB)."
Having a global baseline for sustainability disclosures would allow investors to allocate capital towards financing green and transition activities effectively he added.
"Given the ISSB's objective of establishing global sustainability-related disclosure standards, we should be ready to adapt.
"This is particularly important as investors are increasingly integrating ESG factors into their investment considerations.
Although the market's readiness was still at a nascent stage, the SC encourages the industry to continuously upgrade its skills and expertise to provide fit-for-purpose solutions.
As co-chair of the Joint Committee of Climate Change (JC3) with Bank Negara Malaysia, the SC has been working with the industry to develop reference guides to advance the financial sector's response against climate change risks.
These reference guides will help Malaysian financial institutions integrate climate-related risk considerations into their business strategies.
"I am hopeful that these initiatives will lay a strong foundation for Malaysia's sustainability goals.
"We welcome the government's plans to establish a national carbon market. It demonstrates our national commitment to driving sustainable and competitive growth.
"To support the government's plan, the SC is working with Bursa Malaysia to develop a domestic voluntary carbon market," Syed Zaid said.