Moving forward for the greater good: Sustainable Finance

While the concept of sustainable development has a long history, the discussions surrounding sustainable finance have only gained momentum in recent years. Increasing worries about global warming and human rights are among the catalysts for the push towards more sustainable practices.

From a broader perspective, the introduction of the Sustainable Development Goals (SDGs) and the Paris Agreement have become major push factors for sustainable finance. At the heart of the Paris Agreement, countries announced pledges known as Nationally Determined Contributions (NDCs) to limit global warming and address climate change. As countries seek to meet their NDCs and SDGs, top-down mandates are seen as guides for companies’ behaviour.

Access to financing is identified among the key enablers to achieve SDGs and climate change goals. So far, multiple reports from research institutions globally highlighted the risks of the broadening financing gap to meet sustainability goals. The financing gap in the developing economies is larger than in developed economies, mainly due to awareness and the readiness of the market to provide access to capital for transition purposes. Likewise, larger corporations are able to expand their expertise with relatively easy access to capital markets, while smaller companies may get lost in the mix without adequate funding and resources for them to navigate and adapt to additionally complex sustainability requirements. Therefore, a study to improve access to sustainable financing is critical to ensure smooth transition towards sustainability.

Meanwhile, investors globally are increasingly attracted by ESG (Environmental, Social, and Governance) instruments, and a similar traction is also traced in Malaysia. The Government Linked Investment Companies (GLICs) are playing a key role in driving demand for ESG instruments. Nonetheless, integrating ESG practices in portfolio management is not without its challenges. Therefore, it is important to study the ESG ecosystem and identify the challenges and opportunities for promoting sustainable financing in Malaysia.

Finally, through research collaboration efforts with industry and academia alike, ICMR will continue to study the role of the Malaysian capital market in providing access to capital for sustainable development activities. ICMR will continue to support sustainable financing initiatives to meet our country’s SDG and NDC commitments.

ICMR launched its inaugural edited book on Sustainable Finance, “Financing Sustainability: Critical Issues with East Asian Experiences” in 2022. Led by chief editor, Prof. Dato’ Dr. Rajah Rasiah, the book is a compilation of thought pieces contributed by ICMR analysts and regional experts – offering valuable insights to address the financing of sustainable development. Click here for more information.