(July 22): Malaysia stands at a critical juncture where its economic prosperity, historically tied to fossil fuels, must pivot towards a sustainable future. With the 2050 net zero target in the near view, the country needs an effective capital mobilisation plan to achieve its climate goals and ensure a thriving economy.

The scale of the financial challenge is significant, with estimates indicating Malaysia requires over RM600 billion to achieve its clean energy objectives. This highlights the urgent need for innovative financing solutions.

A robust policy framework is essential to support and drive sustainable financing by providing clear guidelines, transparency, and accountability, which in turn boosts investor confidence and participation. For instance, the adoption of the International Sustainability Standards Board (ISSB) standards ensures a global baseline for sustainability disclosures, enabling companies to provide consistent and decision-useful information to investors.

Upcoming legislative measures, such as the National Climate Change Bill that is expected to be tabled in 2025, will provide a solid legal foundation for climate action, compelling companies to integrate sustainability into their operations. Similarly, the development of the National Carbon Market Policy will facilitate carbon trading, incentivising reductions in greenhouse gas emissions and attracting investments in green technologies. These policies not only align financial markets with environmental goals but also facilitate the flow of capital into green initiatives, driving the transition to a low-carbon economy.

Public-private partnerships (PPPs) in Malaysia play a crucial role in sustainable financing by leveraging private-sector efficiency and innovation to meet public-sector goals. An example of this is the large-scale solar (LSS) programme. This competitive bidding programme aims to reduce the Levelized Cost of Energy (LCOE) for developing LSS projects, thereby making solar energy more affordable and accessible. These partnerships ensure cost-effective solutions and help achieve public sustainability objectives while providing economic, financial, and societal benefits.

Blended finance also can significantly advance sustainability in Malaysia by combining public, private, and philanthropic funds to de-risk investments and attract private capital for sustainable projects. By mobilising private investment, blended finance structures help mitigate risks through public or philanthropic capital, which is crucial for large-scale infrastructure projects that might otherwise be too risky for private investors alone. The Malaysian government has created a supportive regulatory framework for blended finance with initiatives such as the Green Technology Financing Scheme (GTFS), which provides guarantees to financial institutions to encourage lending to green projects. By addressing financial gaps and de-risking investments, blended finance plays a pivotal role in advancing sustainability in Malaysia, promoting projects that contribute to the country's long-term environmental and economic goals.

Malaysia's pioneering efforts in green sukuk issuance position it as a leader in Islamic green finance, and the country should continue to leverage green sukuk to gain a competitive edge in sustainable development by attracting significant investment in green projects, thereby enhancing its economic resilience and environmental stewardship. Green sukuk, aligning with both Islamic finance principles and sustainability goals, provides a unique financial instrument that appeals to ethical investors globally. Since the issuance of the world’s first green sukuk in 2017, Malaysia has attracted significant investments aimed at renewable energy and sustainable infrastructure. By issuing green sukuk, Malaysia can fund renewable energy projects, sustainable infrastructure, and other eco-friendly initiatives, positioning itself as a leader in green finance.

The success of these sukuk has demonstrated the potential for Islamic finance to support sustainable development while appealing to a broad base of investors seeking ethical investment opportunities. This strategy not only supports the country's commitment to the Sustainable Development Goals (SDGs) but also boosts its reputation in the global financial market, drawing in more international capital dedicated to sustainable growth.

The concept of a just transition aims to balance the shift towards a green economy with the need for social equity and inclusion. For Malaysia, this means mobilising capital effectively to ensure that the benefits of the green transition are widely shared and that vulnerable populations are not left behind.

This approach addresses the socio-economic impacts of transitioning to sustainable practices by protecting vulnerable communities and fostering social inclusivity. By incorporating just transition principles, Malaysia aims to protect the livelihoods of those in traditional sectors while fostering new opportunities in green industries, ensuring a balanced and fair economic evolution.

Incorporating just transition principles into sustainable financing frameworks is vital for attracting and retaining investment in Malaysia’s green economy. Investors increasingly seek projects that meet environmental, social, and governance (ESG) criteria, and a commitment to a just transition demonstrates Malaysia's dedication to these values. By supporting policies that provide retraining and upskilling for workers, create new job opportunities in sustainable industries, and ensure social protection, Malaysia can create a stable investment environment. This stability is crucial for long-term economic growth and the successful transition to a low-carbon economy.

Moreover, embedding just transition principles can spur innovation and technological advancements in sustainable industries. By incentivising research and development in green technologies, Malaysia can enhance its competitiveness on the global stage. This not only attracts cutting-edge investments but also fosters a culture of continuous improvement and adaptation. Such a holistic approach ensures that the move towards a low-carbon economy is inclusive, resilient, and sustainable, aligning with global efforts to combat climate change and promote sustainable development.

The road ahead requires a collective effort. Achieving a sustainable future for Malaysia hinges on the strategic mobilisation of capital, fostering innovation, and ensuring social equity. Prioritising social equity ensures that the benefits of this transition are inclusive, supporting vulnerable communities and fostering a fair economic evolution. By integrating these elements, Malaysia can pave the way for a resilient, low-carbon economy that enhances the well-being of all its citizens.

Exploring ‘Mobilising Capital for a Just Transition’, the upcoming Climate Finance Summit (CFS) 2024 on Aug 1 will feature conversations through panel discussions on ‘Malaysia’s Leadership in Climate Finance Policy’, ‘Financing for Transition’, ‘Bridging Gaps for Climate Justice’ and ‘Embracing the Green Shift in Sustainability Adoption’, as well as a debate session on ‘The Carbon Border Adjustment Mechanism’. Held at Sasana Kijang, Bank Negara Malaysia, Kuala Lumpur, the summit is organised by the Perdana Fellows Alumni Association (PFAA), as its second instalment of the event. By bridging speakers from different backgrounds and expertise, including from the private, public and non-profit sectors, CFS 2024 hopes to host enriching discussions to catalyse innovative solutions for financing a sustainable future that leaves no one behind.

Alexander Goh and Elise Arya Chen are responsible for Content and Policy Advocacy for the Climate Finance Summit (CFS) 2024. Mukriz Mahader is the Co-Director of CFS 2024.

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