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STRATEGIC CONSIDERATIONS
3.3.1 MOBILISING CAPITAL TO SUSTAINABLE AND RESPONSIBLE BUSINESSES
A. ENABLING MORE COMPANIES TO TRANSITION TO A NET-ZERO FUTURE
Today, green projects in Malaysia are largely funded through bank loans and bonds or sukuk, including those issued under the SRI Sukuk Framework and the ASEAN Green Bond Standards. Green financing for smaller companies or green suppliers through alternative channels or private markets is still few and far between.
For the transition to a net-zero future to be successful, businesses across various sectors, including energy, manufacturing, construction and transportation will require significant financing to decarbonise. Businesses will not only need to invest in green or clean energy solutions like renewable energy or low-carbon transport, but also introduce measures to reduce or avoid GHG emissions – all of which will require investments into more advanced technology and innovation or to transform their operational processes. This includes investments in infrastructures, among others, to capture and store carbon dioxide wastes, improve energy efficiency and develop low-emission production methods for goods and services. As businesses embrace net-zero targets in the future, they will need to explore transition financing outside the parameters of green financing and from a much broader range of capital providers.
As such, there is a need for a Malaysian approach towards transition finance – one that is more inclusive of the broader economy to achieve net-zero emission, while minimising greenwashing risks. Although universally accepted transition principles have yet to be developed, there have been increasing considerations for transition finance by various organisations, including the International Capital Market Association and Climate Bonds Initiative. Most of these require greater clarity in issuer-level disclosures on their pathway to net-zero. For example, corporate strategies to transform business models to address climate risks, materiality of planned transition with science-based targets or transition milestones as well as implementation transparency are all key areas that issuers must consider and report using measurable and comparable metrics.25 Some markets and financial institutions are exploring transition taxonomies as a way forward to bring the broader economy along the climate action journey. Such efforts are intended to provide investors with greater clarity that transition labels are not an attempt at greenwashing, but involve genuine activities that are contributing towards reducing global emissions.
To better enable pathways to net-zero targets, businesses will need to tap into different capital providers with varied risk appetites along the development lifecycle of green technology or infrastructure26. While broad funding options are available today, the SC will continue to work with businesses in Malaysia to facilitate greater efficiency in funding their journey towards net-zero. VC firms can be partners for investments in nascent decarbonisation technologies with inherently higher risks or in the earlier stages of development. PE firms, infrastructure debt funds and insurance companies can be capital providers for matured technologies or infrastructures that are in the construction or commission stage. In cases where operating assets are spun-out to be pure-play renewable infrastructure companies, real estate investment trusts (REITs) can also be viable avenues.
Climate Transition Finance Handbook, International Capital Market Association, December 2020. How to Finance Industry’s Net-Zero Transition, Oliver Wyman, 2020.
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CAPITAL MARKET MASTERPLAN 3
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