Malaysia’s Joint Committee on Climate Change (JC3) met last month to explore collaborative action to advance the development of climate resilience within Malaysia’s financial sector.
“Sustainable investments are gaining momentum in Malaysia with key investment themes built around the need for accelerating sectoral transition and climate resilience, such as energy transition, circular economy, food security, and mobility transformation,” a spokesperson for Bank Negara Malaysia (BNM) told FinanceAsia.
The JC3 board was set up in September 2019 to ensure a cohesive approach to ESG endeavours, with its inception serving as “great testimony” to how proponents of Malaysia’s capital markets aim to work closely to improve sustainability practices in Malaysia, CEO of BNP Paribas Asset Management’s (BNP Paribas AM) Southeast Asian business, Angelia Chin-Sharpe, told FA.
Its members comprise representatives of the market’s central bank, BNM; capital markets regulator, Securities Commission Malaysia (SC); stock exchange, Bursa Malaysia; as well as 21 other financial industry players, ranging from Chin-Sharpe’s team at BNP AM, to insurance firms Allianz, Swiss Re and Zurich and banks – including RHB Islamic and CIMB.
With the aim of expediting the market’s low-carbon practices, the committee outlined at the meeting five initiatives that “emphasise the critical role of the finance industry in enabling a sustainable agenda”. These included a pilot project to transition industrial parks and their operational infrastructure to low-carbon practices; three data-related initiatives; and a RM1 billion ($0.210 million) guarantee to extend funding to smaller market players in support of their ESG agendas.
“One of the tenets of ‘Ekonomi Madani’ (the aspiration to implement a strategy that charts Malaysia on a strong development path by realising and addressing core national challenges) is to spur Malaysia’s green growth towards climate resilience,” the BNM spokesperson told FA.
“To achieve the National Energy Transition Roadmap (NETR) targets set for 2050, there are extensive opportunities for industry players, including international investors,” she said.
Malaysia’s NETR identifies ten flagship projects across six energy transition levers – energy efficiency (EE); renewable energy (RE); hydrogen; bioenergy; and finally, green mobility and carbon capture, utilisation and storage (CCUS). These are expected to catalyse and accelerate the pace of the market’s energy transition; to reduce greenhouse gas (GHG) emissions by at least 10 metric tons of carbon dioxide equivalent (MtCO2eq) annually; create 23,000 high-impact job opportunities; and enhance growth opportunities for Malaysia’s corporate ecosystem, with positive overflows to wider society.
Their successful delivery requires between RM1.2 trillion and RM1.3 trillion in investment up to 2050 across infrastructure, technology and human capital, the BNM contact confirmed.
BNP Paribas AM’s Chin-Sharpe noted that while Malaysia’s institutional community understands the importance of integrating ESG into investment strategy and is capable of reviewing such opportunity, “there is still a need to educate” smaller scale investors on the opportunities and risks associated with sustainability strategies.
“Having said that, most banks in Malaysia are committed to play a more active role to align and assist their clients with regard to understanding the [relevant] Malaysian taxonomies,” she said.
Regulation and investment
The five new initiatives have been incorporated into the government’s budget for 2024 and “complement other policies such as the NETR, the New Industrial Master Plan (NIMP) 2030 and the Mid-Term Review of the 12th Malaysia Plan (MTR-12MP),” YB Nik Nazmi Nik Ahmad, minister of Natural Resources, Environment and Climate Change, said at the JC3 conference.
The BNM spokesperson confirmed with FA that all governing parties: JC3 members, Malaysia’s Corporate Guarantee Corporation, and relevant ministries, are committed to implementing the projects.
Malaysia’s regulatory landscape continues to accommodate its ongoing energy transition and the investment required to achieve it. “The capital market should be ready to facilitate fund raising and investments to achieve sustainability and climate goals. The SC has paved the way for sustainability from 2011, when Sustainable and Responsible Investment (SRI) was embedded in the Capital Market Masterplan CMP2 as a key growth strategy,” Dato’ Seri Dr. Awang Adek Hussin, chairman of the SC, said at the conference.
In 2021, BNM issued a Climate Chance and Principle-based Taxonomy; in December 2022, SC unveiled a Principles-Based SRI Taxonomy for the Malaysian Capital Market (SRI Taxonomy); and in June this year, SC inaugurated the International Sustainability Standards Board’s (ISSB).
Meanwhile, the BNM spokesperson highlighted last month’s implementation of Energy Efficiency and Conservation legislation, as being likely to reduce energy use significantly by 2050 – by 2,017 million gigajoules, which is equivalent to RM97 billion in savings: “This will also create new jobs in energy management and auditing,” she explained.
“Investment has risen in Malaysia partly as a result of a regulatory environment which has done more to facilitate appetite in renewables,” said Adrian Wong, head of Projects and director at legal firm, Prolegis, which has a formal law alliance with Herbert Smith Freehills (HSF) in Singapore.
Among the renewable infrastructure projects that his team is assisting clients with, are large scale solar auctions in Malaysia’s peninsular and projects located along the Sarawak Corridor of Renewable Energy (Score).
“In terms of demand for renewable energy, the transport sector is projected to be a major player moving forward with electric vehicle (EV) usage projected to rise up to 80% of the car market in 2050.”
However, he told FA that opportunities across solar, hydro and bioenergy projects offer greatest potential. “All three sources are projected to rise and make up to approximately 17% of Malaysia's total energy mix in 2040.”
Data drive
Three of the five initiatives announced during the conference focus on data and the capacity for emerging technologies to support Malaysia’s the sustainability agenda.
The first builds on the success of JC3’s Greening Value Chain (GVC) pilot programme, which launched in 2022 and has so far helped 80 small and medium enterprises (SMEs) measure and report greenhouse gas (GHG) emissions across the breadth of their supply chains. The updated plan links Bursa Malaysia’s sustainability data platform with the GVC programme, with a view to offering public listed companies (PLCs) capacity-building support, reporting tools and additional financing facilities, which the BNM spokesperson said could be accessed at “at competitive rates via the Low Carbon Transition Facility (LCTF)”.
Other data-related endeavours include access to an “ESG jump-start portal” through which Malaysian businesses can access practical information on ESG-related capacity-building programmes, certification, as well as financial and incentive schemes; and the launch of a Green AgriTech programme to encourage the adoption of green tech and sustainable agriculture practices among local farmers.
“Green AgriTech offers significant potential for Malaysia's agricultural sector by opening up new opportunities and addressing key challenges,” the BNM spokesperson said.
Wong agreed that emerging tech has capacity to modernise and transform Malaysia’s ESG approach, including across the agricultural sector. He cited the potential for positive repercussions to extend all the way from ensuring sustainable supply of food resources, to improving overall health and environmental standards.
“One notable example of this is the Malaysia Digital Economy Corporation's project which connected small farmers to online marketplaces providing smart warehousing facilities, delivery, and farming solutions…to ensure that farmers can carry out their financial transactions digitally,” he suggested.
“This catalytic pilot program encourages farmers to leverage technologies and adopt greener and sustainable practices through a comprehensive approach to green solutions. Grants and LCTF are made available to participating farmers to acquire green technology,” the BNM spokesperson added.
“The use of technology can enhance the stability and quality of harvest, as well as help address food security challenges.”
Sustaining momentum
At the heart of Malaysia’s transition, lies its effort to draw input from all facets of Malaysia’s economy, both government and the private sector. “Efforts to scale public-private partnerships are also ongoing, with new initiatives,” the BNM spokesperson told FA.
“The GVC programme is a good example of an innovative blended finance initiative in Malaysia to support the transition to a greener economy,” she said.
The contact emphasised that BNM continues to support the participation of private institutions in the government’s debt offerings: “BNM also supports such efforts by facilitating the issuance of Government of Malaysia Sustainable Sukuk for subscription by both domestic and foreign investors.”
“With the introduction of the SRI-linked Sukuk Framework last year, the Malaysian capital market has a complete suite of frameworks to help companies tap into the sukuk market not just for financing green, social and sustainability projects, but also for transition purposes,” said SC chairman, Hussin at the conference.
Fitch recently published an ESG report revealing persistent international appetite for ESG sukuk. The data details outstanding ESG sukuk issuance as having expanded by 66% year-on-year (YoY) to reach $33.3 billion globally by the end of 3Q23.
“There is a crossover between Islamic finance and ESG principles due to built-in sharia filters,” research by the ratings agent detailed.
“Fitch Ratings expects further growth over the medium term. The segment’s growth is driven primarily by governments’ sustainability initiatives and issuers’ funding diversification goals towards both the sharia and ESG-sensitive investors,” the report outlined.
With this year’s Conference of Parties (COP)28 set to be hosted in the United Arab Emirates (UAE), “ESG sukuk could receive an awareness and issuance boost,” wrote Bashar Al-Natoor, Fitch’s global head of Islamic Finance.
In closing the Malaysian conference, Hussin concluded, “It is encouraging to see the Malaysian government adopting a ‘whole of nation’ approach to addressing the impact of climate change on economic sustainability. The relevant ministries have released roadmaps and masterplans which outline the country’s sustainable development strategies and priorities.”
“I would like to reiterate that our planet is facing an unprecedented challenge, one that demands urgent and concerted effort from all nations, industries, and individuals.”
