SC launches new sukuk framework to facilitate companies’ transition to net zero

KUALA LUMPUR (June 30): The Securities Commission Malaysia (SC) has launched a new sukuk framework to facilitate fundraising by companies in addressing sustainability concerns such as climate change or social agenda, with features that relate to the issuer’s sustainability performance commitments.

The Sustainable and Responsible Investment (SRI)-linked Sukuk Framework is an extension of the initiatives under the SRI road map that was introduced in 2019 to broaden SRI product offerings, the SC said in a statement on Thursday (June 30).

"More significantly, this initiative reflects the SC’s commitment to expanding the reach of the Islamic capital market (ICM) to the broader stakeholders of the economy and building an enabling ICM ecosystem for the sustainability agenda," added the regulatory agency.

The SC said high-emitting industries are at high risk of being phased out with the accelerated shift towards developing a climate-resilient future.

The SRI-linked sukuk, it added, will enable companies in these as well as other industries to transition into a low-carbon or net zero economy.

“The SRI-linked sukuk framework will encourage greater mobilisation of private-sector and issuers’ financing towards sustainable development and meet 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 syariah-compliant SRI,” said SC chairman Datuk Seri Dr Awang Adek Hussin.

Under the framework, the proceeds raised can be utilised for general purposes, subject to the issuer committing to future improvements for sustainability outcomes within a predefined 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," said the SC.

It added that the sukuk 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.

As at Dec 31, 2021, global sustainable bonds outstanding exceeded US$1 trillion (about RM4.41 trillion), with sustainability-linked bonds making up US$118.8 billion.