Bursa Malaysia’s voluntary carbon market exchange is evidence of the concrete steps Malaysia is taking towards net zero. – The Star
THE recent creation of a voluntary carbon market (VCM) exchange by Bursa Malaysia, the country’s frontline regulator of capital markets, is a potentially important step forward for Malaysia and the region. All ten Asean countries, including Malaysia, are among the 194 nations that signed the Paris Agreement to reduce emissions and work together to combat climate change. The Bursa Carbon Exchange (BCX) is evidence of the concrete steps Malaysia is taking towards net zero.
Put simply, carbon markets are a venue where carbon credits are issued, bought, and sold – effectively putting a dollar value on carbon (and pollution), which penalises activity that creates carbon emissions. This can be good for both the environment and for business. It could galvanise companies and investors around decarbonisation projects while also driving international investor interest in Malaysia’s capital markets.
As the world mobilises to reduce carbon emissions, there is a flurry of different approaches in play. Carbon markets, like BCX, have been subject to renewed interest as an effective mechanism to reward industrial carbon reduction.
However, carbon markets are emerging in many markets and there’s no guarantee of success. It is vital that BCX plays to the unique strengths and opportunities it has within Malaysia.
The BCX is the first Shariah-compliant carbon exchange in the world and will offer an important niche for investors looking for sustainable and Shariah-compliant solutions bundled in one. Malaysia has identified a real first-mover advantage, pioneering this offering in the world of Islamic finance.
Bursa Malaysia is a member of the Joint Committee on Climate Change (JC3), a platform chaired by the Securities Commission Malaysia and Bank Negara Malaysia, who partner hand in hand to build climate resilience within the Malaysian financial sector. The Malaysian capital markets regulator is to be commended for its clarity in guidelines, process and transparency around listing eligibility. In the notoriously fast moving and complex world of green finance, objective and easily understood rules are vital to attracting credible listings and investors alike.
However, the establishment of a framework is only the first step. Malaysia’s carbon market needs to be part of a broader climate finance ecosystem to ensure success. In addition to market participation and sustained government support, quality data is key.
The challenge for many carbon markets is how fragmented and inconsistently they’ve operated to date. Situations where credits inaccurately reflect emissions reductions can erode investor confidence. The limited availability of pricing data also makes it difficult for buyers to determine the value of carbon credits. Any successful iteration of BCX will require a strong commitment from regulators and participants to ensure detailed, accessible and accurate emissions and pricing data.
In this respect, Malaysia can leverage the deep knowledge that already exists within its financial sector – particularly when it comes to Islamic finance – and potentially become a market leader for others to follow. However, it will require a genuine and long-term commitment from market participants to ensure that Malaysia’s carbon market builds sufficient scale and quality of listings to attract foreign investment.
The rewards on offer for getting this right are significant. Most importantly, a vibrant BCX would fundamentally support Malaysia’s climate goals for 2050. For carbon emitters, it would allow them to offset emissions by purchasing carbon credits that reduce greenhouse gas.
And for carbon credit suppliers, there is financial motivation to develop carbon avoidance and removal projects, in the form of carbon credits issued for emissions saved.
BCX can potentially incentivise the establishment of more homegrown projects, driving local investment. This creates a virtuous cycle – allowing Malaysia to unlock greater supply of high-quality, nature-based carbon credits which will likely attract further green investment from abroad – ultimately bringing more investors to BCX and the Malaysian market. In the case of voluntary carbon markets, momentum is everything.
The launch of BCX is a quietly important moment for Southeast Asia and underpins Malaysia’s aspirations of carbon neutrality by 2050. BCX has potential to play a significant role in boosting Malaysia’s – and Southeast Asia’s – voluntary carbon market ecosystem as we transition to a green economy.
Regardless of whether BCX takes off from day one or is on a longer trajectory, the new exchange can serve as a catalyst to peers like Indonesia and India, who also have VCM plans on the horizon, to do the same and get involved sooner rather than later. – Bloomberg
Sunny Chhabria is deputy head of Bloomberg’s financial information and enterprise business in Asia-Pacific. He is responsible for the firm’s business and product strategy in the region and leading teams in Singapore/Asean, Australia/New Zealand, India/South Asia and Japan.
