KUALA LUMPUR (Sept 22): Islamic finance has significant global growth potential in line with the growing worldwide movement towards environmental, social and corporate governance (ESG), given their commonalities.
Bursa Malaysia Bhd chairman Tan Sri Abdul Wahid Omar said instruments that meet syariah principles also meet ESG requirements due to their common criteria, including legitimate underlying transactions, not speculative in nature and not harmful to mankind, the society and the environment.
“There are a lot of opportunities in Islamic social finance as we exit the Covid-19 pandemic.
“I don’t think Islamic finance is competing with ESG. It is very much complementary [in nature], and when ESG gains traction, so will Islamic finance,” he said at the virtual 2021 APAC Summit today.
Abdul Wahid said embracing ESG principles and committing to net-zero carbon emissions goals are no longer an option but a must for corporates’ survival, noting that more than 130 countries are expected to commit to net-zero carbon emissions goals by 2050-2060.
With continued efforts by the United Nations (UN) Principles for Responsible Investment, Principles for Responsible Banking and Principles for Sustainable Insurance, all businesses would eventually get on board the net-zero carbon emissions movement, he said.
“Given the neutrality of ESG, we hope financial institutions would start to offer syariah-compliant ESG products, which will then appeal to both syariah funds and non-syariah funds,” he said.
Global Islamic assets under management (AUM) grew by 2.3 times over the last decade to reach US$140 billion (US$1=RM4.18) as at end-2020.
Abdul Wahid said the increase in the scale of funds might be an indication of the flow of funds into emerging markets’ fixed-income funds as a result of the search for yields and increased global liquidity.
He added that Islamic funds continued to remain concentrated by domicile in three core markets, namely Saudi Arabia, Malaysia and Iran, constituting around 81% of total Islamic AUM.
Malaysia alone accounted for 29.3% of the AUM, he said, noting that there is also tremendous growth potential for Islamic funds in Indonesia as its economy would grow significantly in the next few years.
Abdul Wahid also added that in Malaysia, syariah funds grew by 41.5% over the past two and a half years to RM225 billion, equivalent to 24% of the total AUM of RM947 billion.