Globally, efforts towards building climate resilience have intensified, with global supply chains joining the movement. The race towards Net Zero by 2050 has also seen multi-national corporations (MNCs) restructure their supply chains to be more sustainable, putting non-compliance suppliers at risk of being sidelined. As a trading nation, Malaysia stands to lose USD65.3 billion4 worth of annual export revenue if we do not embrace the transition towards a low carbon and climate resilient economy by 2025. Trade partners have started to impose expectations on sustainability as preconditions to transact. For example, Malaysia’s major trade partners (e.g. China, EU, South Korea and Japan) commitments to Net Zero by mid-century and the recently EU’s proposed Carbon Border Adjustment Mechanism will increase the cost of business to export into these markets. It is clear that sustainability is no longer a nice to have but an imperative business consideration critical for long-term survival. It is encouraging to see that the financial sector is stepping up on this front including via the offering of sustainable finance solutions and assistance to companies in their transition journey. Islamic financial institutions have and continue to lead through Value-based intermediation (VBI) practices. VBI stems from the underpinning values of Maqasid Shariah that propagates attainment of benefits and prevention of harm that is consistent with the principles of sustainability.
This entails focusing our sights on the path ahead, towards re-building a global financial architecture that will facilitate and secure our economic prospects. With the considerable benefit of hindsight, we now know that finance, if not anchored to the aim of creating sustainable value in the real economy, will become inherently unstable and destabilising to the ultimate goals of greater shared prosperity. There is thus a compelling need for finance to have a greater role in shaping responsible behaviour that underpins a stable and well-functioning economy, and advances the goals of a progressive society and sustainable environment. This is the underlying objective of responsible finance. Of significance, aligning business practices towards responsible finance entails a paradigm shift away from the conventional thinking of finance - the most important distinction being the need to recognise and appreciate that responsible finance delivers value by focusing on its ultimate outcomes, rather than its immediate returns. Responsible finance at its core strives to serve wider objectives that is consistent with, but goes beyond, the predominant objective of enhancing shareholder value. In delivering long term sustainable value, allocative efficiency is achieved in a manner that promotes stability and prosperity in the broader economy and sustainability of the environment. Above all, responsible finance aims to optimise its positive impact on society, economic wellbeing and development. Over the recent decade, the heightened advocacy for ethical and socially responsible investments has also seen the proliferation of financial instruments that cater for both financial and societal objectives.