The Securities Commission Malaysia (SC) on June 30 launched the Sustainable and Responsible Investment-linked (SRI-linked) Sukuk Framework to facilitate fund raising by companies in addressing sustainability concerns such as climate change or social agenda, with features that relate to the issuer’s sustainability performance commitments.
With the accelerated shift towards developing a climate-resilient future, high-emitting industries are at a high risk of being phased out. The SRI-linked sukuk will enable companies in these as well as other industries to transition into a low-carbon or net-zero economy. As of December 31 2021, the global sustainable bonds outstanding exceeded US$1 trillion with sustainability-linked bonds making up US$118.8 billion.
The framework is an extension of the initiatives under the SRI Roadmap that was introduced in 2019 to broaden SRI products offerings. More significantly, this initiative reflects the SC’s commitment to expand the reach of the Islamic capital market (ICM) to the broader stakeholders of the economy and build an enabling ICM ecosystem for the sustainability agenda.
The SC recognizes that there are significant opportunities for the market to attract a more diverse issuer and investor base and undertake a wide range of sustainable projects.
Commenting on the framework, SC chairman Dato’ Seri Dr. Awang Adek Hussin says: “The SRI-linked sukuk framework will encourage greater mobilization of private sector and issuers’ financing towards sustainable development and meet the increasing global demand for sustainable financing. This is in line with the initiatives outlined in the Capital Market Masterplan 3 to reinforce Malaysia’s value proposition as the regional centre for Shariah-compliant SRI.”
Under the framework, the proceeds raised can be utilized for general purposes, subject to the issuer committing to future improvements for sustainability outcomes within a pre-defined timeline, which will be monitored using key performance indicators (KPIs).
The financial characteristic or structure of the SRI-linked sukuk may be varied based on the success or performance of the issuer in meeting its KPIs and sustainability goals.
The framework also provides greater transparency for investors by requiring issuers to appoint an external reviewer before issuance and an independent verifier post-issuance to assess compliance with the framework and issuer’s sustainability performance which can be tracked by investors.