Malaysia in Islamic finance, a catalyst for ESG-driven investment

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Petaling Jaya—RAM Ratings sees Malaysia’s leadership in Islamic finance as a catalyst for environmental, social and governance (ESG)-driven investment. Recently RAM was among the featured voices in the international research paper, Investor Obligations and Duties in Six Asian Markets, jointly published by Principles for Responsible Investment, the United Nations Environment Programme Finance Initiative and The Generation Foundation. The report also took into account the views of key institutions in Malaysia, such as Bursa Malaysia and the Employees Provident Fund, as well as other market players.
“Malaysia has been leading the charge in Islamic finance for several years. The government has supported this development side-by-side with conventional finance. Malaysia now has the ecosystem needed to support the growth of Islamic finance: it has pension funds and institutional investors creating the demand for Sukuk, a steady stream of corporate, infrastructure and Islamic financial institutions issuers creating the supply, a robust backbone of regulations, capable and innovative legal, syariah and banking professionals and domestic credit rating agencies.
“To see a similar growth trajectory for ESG/responsible investment, the government needs to follow a similar path to that which has led to Malaysia’s leadership position in Islamic finance,” said RAM Ratings CEO Foo Su Yin, in an excerpt from the section on Malaysia in this publication.
Meanwhile, PRI managing director Fiona Reynolds added: “Fiduciary duty remains the biggest barrier to ESG integration. In many Asian markets, responsible investment is still a new concept; however, momentum around this issue is growing, which is why it’s vital that investors and policymakers work together to ensure sustainability issues continue to gain traction across the region.”
The report highlights that there are compelling national-interest reasons for policy makers to promote the incorporation of ESG factors into investment practices in China, Hong Kong, India, Malaysia, Singapore and South Korea. Prudence dictates the consideration of ESG factors in investment decision-making and to be part of the dialogue between investors and companies. This is consistent with the legal framework in all the markets studied in this report. The integration of ESG factors in these markets is at an early stage. The global importance of Asia’s markets means the pace of change matters to investors the world over.—Agencies