Thursday 28 Mar 2024
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This article first appeared in Personal Wealth, The Edge Malaysia Weekly on March 25, 2019 - March 31, 2019

In an effort to expand the Islamic capital market as well as the closely linked sustainable finance segment, the Securities Commission Malaysia (SC) will continue to broaden its Socially Responsible Investing (SRI) Sukuk framework and introduce Islamic SRI positive screening for equity offerings this year, says its deputy chief executive Datuk Zainal Izlan Zainal Abidin.

“The Islamic capital market is one of our key priorities. We continually look at how we can expand and broaden the reach of Islamic finance and the Islamic capital market. In 2014, we introduced the SRI Sukuk framework, which combines the elements of sukuk with the SRI purpose of utilisation of the proceeds. Now we are exploring [how to develop further] shariah-compliant equities,” he said at a media conference on March 14 that was held in conjunction with the release of the SC’s Annual Report 2018.

“From the interest that we see globally, we think there is a space we can fill by introducing a methodology for the positive screening of shariah-compliant counters. While we still have the shariah screening methodology, which is endorsed by the Shariah Advisory Council, we think this adds another layer to the screening exercise.”

The SC’s Guidelines on Sustainable and Responsible Investment Funds, released in December 2017, defines positive screening as prioritising investments in companies or projects that demonstrate positive environmental, social or governance performance relative to their industry peers.

This is in contrast with negative screening, which is typically used by the industry today. The guidelines define negative screening as the exclusion of companies undertaking certain business activities or practices from a portfolio based on specific environmental, social or governance criteria, including shariah screening methodology.

In developing a facilitative ecosystem to strengthen Malaysia’s position as a regional leader in sustainable investments, the SC has intensified its efforts in introducing and promoting green, social and sustainable asset classes, according to its annual report.

Two new green SRI sukuk amounting to RM467.3 million were issued last year. This followed three issuances in the previous year, including the world’s first green SRI sukuk in Malaysia. The latest issuances brought the amount raised thus far to RM2.4 billion from RM1.9 billion in 2017.

To encourage more issuances of green SRI sukuk, the SC established a RM6 million Green SRI Sukuk Grant Scheme last year. The scheme incentivises issuers by offsetting up to 90% of the external review costs incurred in relation to the issuance of green SRI sukuk. Administered by Capital Markets Malaysia, four applications received approvals for the grant as at end-2018.

Meanwhile, the total assets under management of licensed fund management companies in Malaysia shrank 4.21% to RM743.58 billion from RM776.23 billion in 2017. The bulk of investments (47.24%) was allocated to equities as at end-2018, compared with 51.03% in the previous year.

Unit trusts continued to be the largest component of the Malaysian collective investment scheme industry, with a total net asset value of RM426.18 billion as at Dec 31, 2018. By the end of last year, there were 37 locally incorporated management companies approved to offer these funds.

Last year, 37 new unit trusts were launched while 22 funds were terminated and nine matured, bringing the total number of unit trusts available to investors to 650 as at Dec 31. Of these, 426 were conventional funds (431 in 2017) and the other 224 were shariah-compliant funds (213 in 2017).

The unit trust industry recorded a total gross sales value of RM204.97 billion last year. Fund management companies were the leading distributors, with sales amounting to RM87.57 billion.

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