Distinguished guests,
Ladies and gentlemen,
On behalf of the Malaysian delegation, it gives me great pleasure to welcome you to Expo 2020 Dubai’s Malaysia Sustainable Finance Week.
We are meeting at an e-pochal period in our history – when the future seems less clear. The virus that has killed millions is still a threat and a constant reminder of how vulnerable we are. At COP26, world leaders are making far-reaching commitments that aim to address and hopefully reverse the catastrophic impact humans have had on the climate. And here we are trying to see what we can do to make a difference. And not a moment too soon, I say.
Robert Swan, the first person to walk both the North and South Poles, warned that, “The greatest danger to our planet is the belief that someone else will save it”. Mr Swan was right. The path to a sustainable future starts with us.
On a personal level, I feel the pressure, the weight of responsibility to make the right decisions that will bring about real change and thus create meaningful impact.
The challenge we all face, is clearly, short-term thinking. Sustainable development promises better and more resilient economies and businesses, inclusive growth and equitable societies but in the future, after a period of adjustment and potentially, some pain.
Vast amounts of capital are required to fund this shift. This enormous task demands the public and private sectors to work together. It is not something that governments can do alone. The private sector must step up and play a key role.
The finance sector, in particular, plays a critical role. The financial system is like the central nervous system of the economy – it coordinates and allocates resources within the economy. It steers resources to areas of growth, and redistributes economic gains to savers. I would up the ante here and say, the Islamic Finance Sector especially can play a truly pivotal role as it is founded on the principles of equity and sustainability.
As such, we believe that Islamic finance is well suited to provide the requisite innovation and financial solutions for the challenges the world is facing today. Over the next few days, we will share insights and advances within Islamic finance that can support the transition towards sustainability.
Ladies and gentlemen,
PRIORITISING SUSTAINABILITY
The past few decades – indeed the past year itself – have shown us the folly and danger of unfettered growth. Newton’s third law in physics is: for every action there is an equal and opposite reaction. Along that thread, all our actions have consequences that now threaten to destroy our future.
The only solution is, we must overcome our addiction to short-term gains. We must accept the trade-offs between growth, sustainability and shared prosperity. In other words, we cannot have it all. The social and environmental costs of our actions, or inaction as the case may be, will be borne by the young people of today.
Thus, moving forward, the emphasis needs to lean towards achieving better social outcomes, while preserving environmental integrity. It is time for sustainable development to be prioritised.
This means that the financial sector must not only ensure capital is directed towards productive purposes, but we must also weigh the social value and impact of corporate activities.
While there is a grounds well of demand for sustainable finance, we have to do more. Sustainable finance bonds have raised a record US$ 778 billion during the first nine months of this year, a 57 percent increase from 2020[1]. Nearly half of these bonds are green bonds.
Within Southeast Asia, bonds and sukuk issued under the ASEAN Green, Social and Sustainability Bond Standards amount to US$ 16.7 billion[2]. One fifth of these issuers are Malaysian entities.
For Malaysia, sustainability has been a long-standing tenet of our Islamic capital market, which was established about 30 years ago. Over these three decades, we have experienced first-hand, the benefits of sustainable financing and investments.
As such, we have continued to introduce dedicated product frameworks and guidelines to encourage product innovation even further to provide a vibrant SRI ecosystem.
Ladies and gentlemen,
ISLAMIC FINANCE AS AN ENABLER IN ACHIEVING SUSTAINABLE DEVELOPMENT
At its core, Islamic finance gives precedence to funding the real economy, especially productive and sustainable activities with positive social and environmental impacts. It promotes social responsibility, inclusion and risk-sharing.
Islamic financial instruments also serve as a model for sustainable finance and impact investing. They promote equitable and participatory growth whilst displaying widespread commercial appeal.
Also, to manage sustainability transitions, we believe that Islamic bonds or sukuk are an effective funding instrument. Since 2014, approximately US$ 1.8 billion[3] of SRI sukuk have been issued under Malaysia’s SRI Sukuk Framework. Issuances have covered a variety of green and social projects, ranging from solar power and sustainable natural resource management, to green buildings and trust schools.
The best part is, sukuk has much more to offer. It encourages the use of new and sustainable approaches, such as funding the deployment of low carbon technologies, as well as contribute to the growth of transition finance.
Malaysia, for instance, has always adopted a pragmatic approach to advance complementary products and asset structures that meet investor needs. This extends to our fund management industry, which has strived to provide a diverse range of investment offerings.
In fact, as a hub for the largest number of Shariah-compliant funds globally, we can see close alignment between Islamic investments on the one hand, and ethical and responsible investing on the other. Given the industry’s Islamic expertise, it would be sensible to leverage existing resources and capabilities to grow both segments to appeal to a wider investor base.
Ladies and gentlemen,
INNOVATING TO MEET CHANGING NEEDS
As sustainable finance enters the mainstream, costs and returns must stay attractive to maintain its appeal. Much like Islamic finance, there will also be opportunities to enhance process and distribution efficiencies.
Digitisation has provided the catalyst for Islamic finance to progress. For example, automated discretionary portfolio management services – also known as roboadvisory - has widened access to Islamic investing; narrowing the financial inclusion gap and ensuring the benefits of the capital market are shared more widely.
Another discipline poised to transform the Islamic capital market landscape is financial technology or fintech. Algorithms, artificial intelligence and machine learning tools promise to simplify processes, enhance transparency and open up new markets and customer segments. From a regulatory perspective, the proliferation of SupTech and RegTech solutions will enhance intermediary reporting and the monitoring of market activity.
In terms of fundraising, the emergence of equity crowdfunding and peer-to-peer financing platforms has provided micro, small and medium-sized enterprises, or MSMEs, an alternative financing avenue.
Besides digitisation, another promising source of growth going forward is Islamic social finance. This includes instruments like qard hassan, waqf and zakat. In particular, we see waqf, an Islamic endowment instrument, as an attractive asset class that integrates commercial obligations with sustainability and social objectives.
Ladies and gentlemen,
CONCLUSION
Sustainability is an issue that transcends economic, demographic and geographical boundaries – rather like a viral pandemic. COVID-19 has exposed the fragility of our modern world. But we have also learnt how a global response can help us find viable solutions to seemingly insurmountable problems. Thus, we can, and we must, redouble efforts to transition towards low carbon, greener and circular economies in line with COP26 commitments.
We must each accept the responsibility for change. To borrow a part of the Dubai Expo theme, it is time to ‘create the future’ that we want. We owe it to ourselves, and future generations, to ensure sustainable and beneficial outcomes for all.
Before I conclude, I would like to thank all the speakers, industry participants and panellists for their time and invaluable contributions to the Sustainable Finance Week programme.
Thank you and I wish you productive discussions ahead.
[2] As at 11 October 2021. Source: ASEAN Capital Market Forum
[3] As at 11 October 2021. Total of RM 7.3 billion converted to US dollars based on exchange rate of US$1 = RM4.16
