30 August 2022
On 30 June 2022, the Securities Commission Malaysia (“SC”) launched the Sustainable and Responsible Investment linked (“SRI-linked”) Sukuk Framework (“Framework”) which provides additional requirements for an issuance of SRI-linked sukuk, via the addition of a new Chapter 9 of the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework (“LOLA Guidelines”). SRI-linked sukuk refers to sukuk where the financial and/or structural characteristics vary depending on whether the issuer meets selected key performance indicators (“KPIs”) and pre-defined sustainability performance targets (“SPTs”).
Under the Framework, proceeds from the SRI-linked sukuk can be utilised for general purposes (i.e. need not be a “green” project), subject to the requirement that the issuer must commit to future improvements for sustainability outcomes within a certain timeframe. Such improvements will be monitored using selected KPIs and SPTs which shall be calibrated by the issuer. The KPIs must, among other things, be significant to the issuer’s sustainability and business strategy, address relevant ESG challenges in the issuer’s industry, and be within the issuer’s control.
In addition, the SPTs must be:
- ambitious yet realistic;
- a material improvement in the respective KPIs and be beyond a “business as usual” trajectory;
- comparable to a benchmark or an external reference;
- consistent with the issuer’s overall ESG strategy; and
- set before, or concurrently with, the issuance of the SRI-linked sukuk.
An external reviewer and an independent verifier must be appointed before and after issuance of SRI-linked sukuk. The external reviewer and independent verifier are responsible to provide reports that are made by assessing the issuer’s compliance with the Framework and the requirements under the LOLA Guidelines. Further, the issuer must publish the verifier’s report and updated information on its sustainability performance on the designated website.