1. A very good morning and welcome to the Labuan International Finance Lecture Series 2023. I am grateful that we are able to be here in person rather than virtually. This underscores the significance of this event, and we are pleased to have all of you today. Labuan lecture is held annually where we invite prominent speakers and experts to speak on topical issues.

2. The last lecture series was held in 2019, just before the outbreak of the pandemic. In a blink of an eye, the global environment underwent a profound transformation against a backdrop of political unrest in Eastern Europe, high inflation, raising interest rate, escalating living cost, a tumultuous energy market, post-pandemic fatigue, looming recession in the horizon, and an on-going series of climate-induced disasters. And before our very eyes, an impending war is taking place in the Middle East. These factors have significantly influenced the way we live.

3. At the same time, there is a growing emphasis on Environmental, Social, and Governance (ESG) agenda. Regulatory bodies worldwide are intensifying their efforts, addressing issues ranging from greenwashing to imposing stricter requirements for disclosing climate-related targets. This is shaping both the investment landscape and the challenges as well as opportunities confronting financial institutions and businesses.

4. A recent report by the OECD examines the current state and main trends of ESG and climate-aligned investing in Asia and offers policy recommendations aimed at bolstering ESG investing and facilitating financial support for the climate transition. This reflects an increasing interest by market participants to incorporate and examine sustainability considerations in the Asian financial sector.

5. While Asia is still scaling up the coverage of ESG ratings, the findings in the recent OECD report on Sustainable Finance in Asia: ESG and climate-aligned investing and policy consideration, indicate that ESG and climate-related approaches have made significant progress in Asia, including a high coverage of ESG ratings as a share of market capitalisation. Many jurisdictions in the region have issued ESG disclosure guidance to further strengthen practices and address challenges. Additionally, it was observed that the rate of development of ESG practices in Asian economies has varied significantly. Certain jurisdictions in Asia have witnessed a substantial surge in ESG investing and coverage, whereas other economies are progressing at varying rates and are in different phases of adoption, including Malaysia.

6. Although Malaysia is still in the early stages of embracing ESG practices, we made commendable progress compared to our peers in the ASEAN region. In terms of ESG ratings based on market capitalisation, Malaysia is among the top five countries in Asia. We are just behind Japan (83%), Korea (69%), Singapore (84%), and Malaysia stands at (67%). This achievement resonates well with our topic today, "ESG: Catalysing Asia's Sustainability via Labuan IBFC," which aims to provide the industry professionals with comprehensive insights on how to navigate their ESG journey through Labuan IBFC.

Ladies and Gentlemen,

7. On the national front, it is noteworthy that the Joint Committee on Climate Change (JC3) has recently introduced various initiatives. These include a RM1 billion portfolio guarantee scheme aims at facilitating the inclusive transition of the nation towards a sustainable economy. The initiatives consist of an ESG jump-start portal, the establishment of Greening Industrial Parks, a Green AgriTech programme, and a Greening Value Chain programme. It is imperative for the financial sector to take the lead in tackling climate change due to its huge influence as custodians of capital and investments.

8. Socially responsible investing (SRI) also is experiencing an upward trend in Malaysia, mirroring international and global trends. In fact, Malaysia is one of the first countries in the region to put out specific rules to help with sustainable financing and investments and to promote the growth of this market segment. As of 2022, SRI sukuk issuances totalled RM18.9 billion since the SRI Sukuk Framework’s inception in 2014. There are also more SRI sukuk issuances related to renewable energy projects and green building. Since the introduction of the Guidelines on SRI Funds in 2017, the Malaysian SRI funds sector has expanded to a Net Asset Value (NAV) of RM7.1 billion with 58 SRI funds as of December 2022 which further accelerated the nation’s sustainability agenda.

9. The Malaysian ESG initiative's transition is significantly aided and supported by the financial sector, but small and medium-sized enterprises (SMEs) also contribute significantly to this purpose. The impact of SMEs on the trajectory of the domestic and international economies is substantial. SMEs are the economic backbone of Malaysia. More than 97% of all businesses are SMEs, contributing to over 38% to GDP and employing 48.2% of the workforce. As demonstrated by these astounding numbers, SMEs play a pivotal role in advancing the sustainability agenda of our country. Over the past few decades, a robust financing ecosystem has been established to offer SMEs an extensive range of funding options from public and private institutions. This has enabled Malaysian SMEs to continue to have access to diversified sources of financing to address their needs at various stages of development.

10. In another word, sustainability constitutes a significant element in Malaysia's development strategies, serving not only to guarantee the nation's survival but also to offer an opportunity for growth of big corporations as well as SMEs. This is strongly supported by the government’s Malaysia Madani policy framework, Budget 2024, the National Energy Transition Roadmap and New Industrial Masterplan that were released recently.

11. Recognising the critical role of the financial sector within Labuan IBFC in complementing national’s ESG pursuit, Labuan FSA continues to promote sustainable development under the Strategic Roadmap 2022-2026 which was launched last year. The Labuan IBFC ESG initiatives' strategic plan can be divided into two primary components:

1. The first component focuses on supporting ESG Market Enablers through business-driven and creative strategies, with Labuan FSA taking significant steps to establish an ESG-friendly ecosystem for fund raising. In tandem with the rapidly expanding Labuan digital financial market, Labuan IBFC aims to be the leading and innovative international Islamic financial hub for Asia. Consequently, Labuan IBFC launched the world’s first Shariah-compliant and ESG based digital asset exchange under the Islamic Digital Asset Centre (IDAC) initiative in 2022, which aims to attract more digital assets, fintech investors and techno-preneurs as a business gateway into Asia. IDAC is essentially a digital asset exchange that will play a significant role as a fund raising and investment hub through the issuance, listing and trading of securities tokens, with a niche in ESG and Shariah compliant activities.
2. Under the second segment of inculcating ESG Cultures and Best Practices, Labuan FSA collaborates with key stakeholders to enhance ESG awareness and appreciation. As part of our efforts to promote sustainability within Labuan financial market, Labuan FSA is currently developing the Sustainability Taxonomy to guide Labuan financial institutions in identifying and classifying economic activities that contribute to climate change mitigation and adaptation. Given the diverse composition of market players within Labuan IBFC, the Sustainability Taxonomy has been developed based on practices observed at both local and regional markets.

12. As part of Labuan FSA’s complementary role to the National’s agenda on the development of Islamic finance and promotion of sustainability, Labuan FSA issued the Guidance Note on Issuance of Green, Social, and Sustainability Sukuk in 2020. The Guidance Note aims to provide a conducive environment for sukuk issuance and offers comprehensive infrastructure that ensures the integrity of Shariah-based structures. The ESG-focused sukuk issuances have demonstrated that by adding a sustainability component to a sukuk offering, the scope of clientele is broadened. Not only it attracts the conventional and Islamic investors, it also attract the socially responsible investors who seek to diversify their holdings and meet their investment goals for sustainable finance. With respect to the use of proceeds of an issuance, the ESG is very much aligned to Islamic finance principles in terms of advocating positive values such as social responsibility, shared prosperity and sustainable growth.

Ladies and Gentlemen,

13. Labuan FSA is dedicated to further strengthen climate-related risk management capabilities and seamlessly integrating sustainability into Labuan financial institutions’ governance practices. These initiatives represent a crucial component of our vision for a sustainable and resilient financial sector, underlining our commitment to shaping a more sustainable and resilient future.

14. As the regulatory authority of Labuan IBFC, Labuan FSA is committed to our stakeholders to act beyond its regulatory and supervisory roles to also include operating sustainably and making a positive contribution to the local community. In fulfilling our social responsibility, Labuan FSA has engaged with our stakeholders through a range of programmes supporting community wellness, promoting education, and protecting the environment. A number of initiatives encompassed financial literacy programmes for the local community, internship opportunities for local graduates, beach clean-up campaign, and so on.

15. As we embark on this discourse, we are stepping into the realm where responsible leadership, ethical practices, and a commitment to our planet and its people converge to shape the path ahead. I urge each one of us here to actively participate and contribute to the ESG initiatives, by contributing to the conversations and exchanging ideas that will sharpen our ability to realise our shared goal of empowering communities for sustainable finance and well-being.

With that, I wish you all a productive session ahead.

Thank you.