SHAH ALAM - The Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guide Working Group (WG) has released its third set of VBIAF Sectoral Guides, which now includes Agriculture, Mining & Quarrying, Road Transportation, and Waste Management sectors.
After more than nine months and over 5,000 hours of development, the guides were crafted by over 40 technical experts and subject-matter specialists, with the support of more than 50 project managers and Working Group members.
These comprehensive Sectoral Guides offer a detailed impact-based risk management toolkit designed to help financial institutions implement VBIAF at a more detailed and transactional level within these sectors.
Alliance Islamic Bank Berhad chief executive officer, and third cohort Sectoral Guide Working Group chairman, Rizal IL-Ehzan Fadil Azim stated that there is a growing expectation for businesses to recognise and address significant Environmental, Social, and Governance (ESG) issues.
However, he added many businesses struggle to identify and manage the environmental and social challenges affecting their operations that need to be mitigated.
"Fathoming the many ESG standards, policies and frameworks that have come onstream could prove daunting to the uninitiated.
"This latest set of Sectoral Guides continues the work of the previously issued sectoral guides by providing structure and clarity to ESG risk assessments and mitigation.
"The Sectoral Guides are helpful when used as part of FIs’ credit and investment assessments. They also provide a framework for the evaluation of Islamic banks’ VBI initiatives,” he said.
Rizal further emphasised that financial institutions can use the Sectoral Guides to assist in classifying their customers according to the Bank Negara Malaysia (BNM) Climate Change and Principle-Based Taxonomy (CCPT).
This initiative is a continuation from the first and second VBIAF WG cohorts that developed the Sectoral Guides on Palm Oil, Renewable Energy and Energy Efficiency in early 2021, followed by guides on Oil & Gas, Manufacturing, and Construction & Infrastructure in early 2022.
The latest Sectoral Guides address the evolving ESG landscape, where institutional investors, the government, regulators, and policymakers expect major industry players to adopt responsible business practices.
Given the abundance and complexity of global sustainability standards and frameworks, these new Sectoral Guides provide a practical reference with clear and concise guidance for both businesses and financial institutions.
"Through the Sectoral Guides, we continue to provide implementation guidance to FIs on embedding ESG, CCPT and VBI considerations into their business decisions.
"We hope for FIs to manage their ESG risk exposures better, making ESG performance a differentiator to strengthen their value proposition to investors and customers alike,” he said.
These Sectoral Guides are expected to accelerate the efforts of the VBI Community of Practitioners (CoP) to promote VBI integration, sustainable financing and responsible banking. The CoP comprises of leading Islamic banks in Malaysia, of which Agrobank, HSBC Amanah Malaysia, RHB Islamic Bank Berhad, and Bank Islam Malaysia Berhad took the lead as Project Managers for Agriculture, Mining & Quarrying, Road Transportation and Waste Management Sectoral Guides, respectively.
Bank Negara Malaysia deputy governor, Datuk Jessica Chew said that climate considerations are being integrated into the Islamic financial sector through the implementation of the VBIAF.
"Over 60 per cent of the Malaysian financial institutions have set, or are in the process of setting, climate targets,” she added.
With the implementation of the CCPT and VBIAF, higher reporting and disclosure standards are expected to enhance efforts by financial institutions (FIs) to integrate ESG, CCPT, and VBIAF principles into their decision-making processes.
These commitments aim to strengthen their value propositions and offer climate-aligned financing and protection solutions for both households and businesses. The 3rd Cohort represents a collaborative industry effort, guided by the CoP, regulators, and sectoral experts.
World Bank Group country manager Malaysia Judith Green expressed satisfaction with the World Bank's collaboration with AIBIM and Bank Negara Malaysia since 2019 in developing the VBIAF and its Sectoral Guides.
"We would also like to commend the sectoral working groups as the guides from the 3rd Cohort support the effective evaluation of ESG risks and opportunities to foster financing for key sectors of the Malaysian economy.
"They also provide practical guidance for the financial sector on how to manage important ESG issues and send a strong signal of the unwavering commitment of the Malaysian financial sector to drive positive and sustainable impact to the economy, community and environment, while also supporting Malaysia’s aspirations to meet its commitment to the Paris Agreement,” she said.