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Bank Negara Malaysia Sustainability Initiatives and HSBC Amanah Pioneers Latest ESG Investment Note

In an important new initiative, Bank Negara Malaysia (BNM) has introduced mandatory testing and disclosure of sustainability of coverage for investment-linked products (sustainability test) by insurers and Takaful operators, effective 1 July 2019.

The objectives of the mandatory testing and disclosure at point of sale and after purchase stressed BNM in a statement are to improve transparency on the active management of the sustainability of cover by insurers/Takaful operators, and to ensure that consumers are provided with sufficient and timely information to actively monitor and manage investment-linked policies/certificates.

BNM sets out requirements on investment-linked products to ensure insurers and Takaful operators accord fair treatment to consumers in preserving the value of the customers’ investment-linked policies/certificates. 

To achieve this, the central bank, which is also the insurance and Takaful regulator, requires insurers and Takaful operators to maintain strong governance in the management of investment-linked business; to ensure professional conduct in the sales and marketing of investment-linked policies/Takaful certificates; and to enhance product transparency and disclosure to enable policy owners/Takaful participants to make informed decisions when purchasing.

Leading the way on the Islamic sustainable finance front is HSBC Amanah in Malaysia. Following on from its pioneering 5-Year RM500 million SGD senior unsecured fixed rate Sukuk – “the first United Nations SGD Sukuk” – in September 2018 under its current EM3 billion multi-currency Sukuk Issuance Programme, the bank launched Malaysia’s first ESG Islamic structured product in June 2019

The landmark ringgit principal protected participation floating rate Islamic negotiable instruments, according to HSBC Amanah, is linked to the Hang Seng Corporate sustainability index and is an ESG-related Islamic structured product which is 100 per cent principal protected if held to maturity. The Hang Seng Corporate Sustainability Index tracks the performances of Hong Kong listed companies that excel in corporate sustainability. HSBC Amanah’s latest ESG product in line with BNM’s value-based intermediation (VBI) initiative. In a statement HSBC stressed that the note pays a fixed coupon of 3.90 per cent per annum (three years tenor) and 4.50 per cent per annum (four years tenor) in the first two years of the investment. Payout at the end of third and fourth year is subject to the performance of the Hang Seng Corporate Sustainability Index and subject to a cap of 5.90% per cent, as well asadjustment for the US$-Ringgit exchange rate.

 

More financial institutions and asset owners are seeking to embed ESG into their investment processes, which encompass concerns relating to climate change impact, energy efficiency, human rights, consumer privacy, gender equality, health and safety, corporate governance and business ethics.

 

Global Sustainable Investment Alliance (GSIA) data published in April 2019 show that global sustainable-investing assets grew 34 per cent to US$30.7 trillion in 2018 from US$22.9 trillion in 2016.

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