Accelerating Sustainable Finance in China and Malaysia

Sustainable finance is heralded to fund the future of the planet, and efforts to accelerate sustainable finance have recently intensified due to its potential to promote financial sustainability, provide better risk assessment and allocate capital efficiently.

During the United Nations Climate Change Conference (COP26), 450 banks, insurance companies, and asset managers from 45 countries of the Glasgow Financial Alliance for Net Zero (GFANZ) committed $130 trillion in assets to meet net zero goals.

Globally, countries are devoted to preparing the financial sector to address climate change by forming national sustainable finance policies. Harmonization between regulators and industry players is vital to address environmental, social and governance (ESG) related risks and opportunities in all sectors. To support sustainable finance, the development of global green, social, sustainable and sustainability-linked bonds have been growing exponentially.

China’s policymakers have consistently highlighted their commitment to tackling climate change. In September 2020, President Xi Jinping announced a plan to reach peak carbon emissions by 2030 and net zero by 2060, placing China’s decarbonisation ambitions in the spotlight.

China is a pioneer on green and sustainable finance. Though no sustainable finance taxonomy comparable to the European Union (EU) has been issued at the time of this article’s writing, it is worth noting that China released the Green Bond Endorsed Project Catalogue in 2015. This Project Catalogue is formed to provide solutions for green financing, specifically the development of the green bond market to provide capital to finance projects with environmental benefits. In 2021, the People’s Bank of China (PBOC), National Reform and Development Commission (NDRC), and the China Securities Regulatory Commission (CSRC) jointly released an updated version of the Green Bond Endorsed Project Catalogue.

This revised version further harmonizes domestic green bond standards to better align with international standards, as regulators further scrutinise industries and projects that are eligible for green financing. This project catalogue is often referred to as “the Chinese green bond taxonomy”.

China also proposes a holistic implementation of the Belt and Road Initiative (BRI), covering several key aspects to achieve the 2030 Sustainable Development Goals (SDGs).

In 2016, the Green Silk Road was established to signal its growing contribution to green development. Since then, the progress toward greening the BRI has been somewhat successful. At the 2019 BRI Forum, roughly a dozen countries and a substantial number of Chinese and international banks signed on to the Green Investment Principles for Belt and Road Development (GIP). This is a momentous affair, signifying the country’s initiative to be

“open, green, and clean”. Other notable initiatives include the establishment of the BRI International Green Development Coalition and the Everbright Belt and Road Green Investment Fund.

Moving the market beyond green bonds issuance, China then introduced an array of financial instruments into the bond market; blue bonds, transition bonds and sustainability- linked bonds. This is in line with the country’s efforts to mobilize resources via capital markets to support an inclusive recovery. However, more work is required, particularly aligning domestic ESG definitions with global standards.

In line with global practices, Malaysia is also playing a crucial role in fostering low- carbon green infrastructure investments and promoting measures to support the SDGs.

Though still in its infancy, Malaysia has been demonstrating dynamic progress in advancing and scaling sustainable finance to mitigate climate change and transition to a sustainable economy. In 2014, Securities Commission Malaysia introduced the Sustainable Responsible Investment (SRI) Framework to facilitate the creation of an ecosystem that promotes sustainable and responsible investing. Since its establishment, several green bonds, social bonds and sustainable bonds have been issued.

Also, in efforts to strengthen its position as a leading Islamic financial marketplace, the introduction of the green sukuk is considered a step towards demonstrating interest in sustainable finance. The Central Bank of Malaysia pledges to embark on policies and strategies to empower the financial sector to drive sustainable finance, to keep abreast of the need for a conducive and coherent ecosystem. In December 2021, the Securities Commission (SC) released a consultation paper to seek public feedback on a principles-based SRI Taxonomy. This taxonomy facilitates an informed and efficient decision-making process, as it guides capital market participants to identify economic activities that are aligned with environment, social and sustainability objectives.

As the world witnesses more robust action towards ESG disclosures and management, green and social investments are gaining ground in the financial markets. The sustainable finance momentum is seen in both China and Malaysia’s financial markets, where climate- related financial disclosure standards are set to impact even non-financial industries.

Indeed, further improvements are needed to address the quality of ESG disclosures in both countries. The priority now is to develop quality and effective policies which are able to address domestically-linked issues whilst integrating with regional and global standards.

Dr. Sonia Kumari Selvarajan is a Senior Lecturer at the Department of Development Studies, Faculty of Business and Economics, University of Malaya. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and the Centre of Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organised by the Association of Belt and Road