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ESG readiness of Islamic banks in Malaysia and ESG risk factors integration in their financing portfolio

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Date
2022
SDG:
Abstract
Sustainable finance involves the practice of integrating environmental, social and governance (ESG) considerations into account in making investment decisions. But little is known about the ESG integration among Islamic banks in Malaysia which leave a gap for this study to investigate. From a survey of 7 respondents from 7 different Islamic banks respondents from both full-fledge and subsidiary Islam banks in Malaysia, it is found that sustainability adoption among Islamic banks in Malaysia is commendable and is at par with the overall financial market but there is still room for improvement on the operations and the oversight functions. The level of awareness is encouraging but Islamic banks are not without their challenges when it comes to implementing ESG within the organisation. In incorporating ESG risk factor into overall Islamic banks' cost of financing, Islamic banks, as well as the conventional counterpart, at this juncture, are taking the soft approach instead of punitive approach by increasing the cost of financing and pricing to the customer through the sustainability risk premium. It is found that the current adoption of sustainability in Malaysia is regulatory driven. Most of the sustainability practices and frameworks in Islamic banks are solely following the directions from BNM guideline and framework. Islamic banks need to take a step back and relook at sustainability as an opportunity to bring Islamic finance to the table to position Islamic banking as the major proponent in environment, social and governance dimension.
Keywords
Sustainable finance , Environmental, social and governance (ESG) , Islamic banks , Malaysia , Project paper (MBA)
Citation
Salim, H. S. (2022). ESG readiness of Islamic banks in Malaysia and ESG risk factors integration in their financing portfolio (Master dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/3757
Publisher
INCEIF

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