Issuers can use SRI-linked sukuk proceeds for general purpose, subject to commitments to future improvements in sustainability outcomes.
Malaysia’s Securities Commission (SC) has launched a new framework for sukuk issuances – Sharia-compliant fixed-income capital markets instruments – that are linked to sustainable and responsible investment (SRI).
The SRI-linked Sukuk Framework is different from that for SRI sukuk in that it allows the proceeds to be used more flexibly, and the financial and/or structural characteristics of the issuance to vary depending on whether the issuer achieves its predefined sustainability objectives within a predefined timeline.
The framework will enable companies in high-emitting industries that are at a high risk of being phased out – as well as other industries – to transition into a low-carbon or net zero economy, the SC says.
Under the framework, proceeds raised can be utilised for general purpose, subject to the issuer committing to future improvements for sustainability outcomes within a predefined timeline.
Sustainability outcomes will be monitored using KPIs that address ESG issues. Issuers will also have to set sustainable performance targets (SPTs), which are pre-defined targets against which the KPIs are assessed.
The financial characteristic or structure of the SRI-linked sukuk may be varied based on the success or performance of the issuer in meeting its KPIs and sustainability goals.
The framework requires SRI-linked sukuk issuers to appoint an external reviewer before issuance, and an independent verifier post-issuance, to assess compliance with the Framework and issuer’s sustainability performance.
Issuers will also have to report on the performance of the KPIs at least annually.
The requirements for SRI-linked sukuk are set out in:
- Chapter 9 of the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework (and the related FAQs)
- Chapter 23 of the Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors.
The framework is an extension of the initiatives under the SRI Roadmap that was introduced in 2019 to broaden SRI products offerings. It is also in line with initiatives outlined in the Capital Market Masterplan 3 in September last year, which seeks to reinforce Malaysia’s value proposition as the regional centre for Shariah-compliant SRI.
The initiative also reflects the SC’s commitment to expand the reach of the Islamic Capital Market to a more diverse issuer and investor base, and build an enabling an ecosystem that promotes the sustainability agenda.