Green Stock Funds Bloom in Malaysia as Shariah Goes Sustainable

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  • Saturna, BIMB to start ethical share plans in Kuala Lumpur
  • Sustainable funds a natural fit with Islamic finance: Saturna

Islamic asset managers are setting up sustainable stock funds in Malaysia as they tap demand for more environmentally conscious investing.

Saturna Sdn., a unit of the company that runs the biggest Shariah-compliant share fund in the U.S., is considering setting up a Kuala-Lumpur based vehicle that will invest in green shares, said Executive Director Monem Salam. BIMB Investment Management Sdn., aims to start a Malaysia-focused environmental plan in the third quarter, said Chief Executive Officer Najmuddin Mohd Lutfi.

Environmental, social and governance funds are in their infancy in Asia, accounting for less than 1 percent of total managed assets, compared with almost 60 percent in Europe. While Malaysia introduced guidelines to promote environmentally and socially responsible investing in late 2014, the government has since become embroiled in allegations of financial irregularities at a state investment company.

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“Malaysia has a supportive environment for sustainable investments,” BIMB’s Najmuddin said in a March 31 interview in Kuala Lumpur. “The agenda on environment, social and governance is real as there are already 2,000 funds doing such investments” worldwide, he said.

Natural Fit

Companies are deemed sustainable when they meet criteria that measures their efforts in environmental conservation, the impact of social responsibility initiatives on the community and the practice of good governance through responsible and ethical decision-making. Malaysia’s stock exchange started an ESG index in December 2014 and firms that comply with its guidelines include Malayan Banking Bhd., Petronas Chemicals Bhd. and Telekom Malaysia Bhd.

The proportion of sustainable investments to total managed assets was 0.8 percent in Asia in 2014, compared with 58.8 percent in Europe, according to a report by the Global Sustainable Investment Alliance. Socially responsible assets under management were at $21.4 trillion worldwide at the end of 2014, $53 billion of which were in Asia.

Institutional funds are putting pressure on companies to be ESG-compliant, BIMB’s Najmuddin said. BIMB is targeting subscriptions of around 100 million ringgit ($26 million) for its planned fund within the first year, he said, adding that sustainable investments could rise to 20 percent of the total in Asia by 2020 due to strong demand.

For Islamic fund managers, sustainable investments are a natural fit as they already have screening systems and technology in place, said Saturna’s Salam.

“Islamic finance is most prominent here in Malaysia and the central bank has done a great job in building the ecosystem and infrastructure,” he said in a March 31 interview. “ESG is Islamic finance 2.0, as it’s about investing in companies that are making a positive impact.”