Kota Kinabalu: Sabah could become the world’s first to issue a Blue Sukuk, an Islamic bond to fund ocean conservation while earning from carbon credits, said Maybank Group Global Banking ESG Strategy and Solutions Head, Ranita Abdullah.
“Sabah has immense potential in terms of eligible activities that you can use to generate carbon credit,” said Ranita who was among speakers at the 3rd Asean Blue Economy Forum held at the Sabah International Convention Centre, here, Wednesday.
“Sabah’s Blue Economy Framework has a wide range of activities including mariculture, renewable energy, shipping, habitat protection and restoration, waste management, blue carbon projects and the traditional tagal fishing system,” she said in her talk on Sustainable Ecosystem through Blue Carbon Financing.
“These are areas where we believe can be a potential area for you to generate the carbon credit which then can be traded on your blue carbon credit platform.
“Once you have carbon credit, it can also be used to be traded and the money from the carbon credit can then be used as an additional source of revenue for the State,” she said.
However, there is a catch. To generate carbon credits, Sabah first needs money to invest in conservation projects.
“You need to first invest in a carbon credit project for it to be able to generate carbon credit,” Ranita said, pointing out the classic chicken-and-egg problem facing many environmental initiatives.
On that note, she said Maybank is ready to serve as Sabah’s strategic partner in this initiative.
“We in Maybank, we would love to hold your hand, be your strategic implementation partner to make sure that you are there on the map,” she said, offering support in structuring the sukuk, providing ESG advice and connecting Sabah with a wider investor base.
“Sabah 2030 is all about turning Sabah’s blue economy potential into reality and I think this can be done by having a nature-positive growth through carbon, conservation and community, which is very holistic.
“So collectively, in short, what we are saying is you have the opportunity to finance the future of Sabah’s blue economy and turn this aspiration into reality by exploring blue sukuk,” she said.
She cited blue bonds, a debt instruments specifically designed to finance ocean and water-based projects.
“They (blue bonds) are already an internationally accepted concept endorsed by organisations like the International Capital Market Association and the International Financial Corporation.
Some examples of blue bonds issued globally is in Seychelles which issued the world’s first sovereign blue bond in 2018, raising $15 million to fund sustainable marine fisheries and expand marine protected areas.
Other examples include Belize, which issued a $364 million blue bond as a debt for nature swap and Thailand, which raised $620 million to address water infrastructure issues.
“In 2023, nearer to our shores, Indonesia also did a blue bond and theirs was also to preserve marine conservation. They issued a samurai bond. Samurai bond means the bond was issued in Japanese yen.
“These are some examples within global as well as region and like I said, there is none yet in Malaysia and because Malaysia is the only country in the world with a very deep sukuk market, if Sabah were to do this, it would definitely be the world’s first blue sukuk issue,” she said.
“It can be structured as a blue sukuk to align with Malaysia’s own strength in Islamic debt capital market,” she said, pointing out that Malaysia has one of the world’s most developed Islamic finance markets.
The mechanism Ranita proposed is straightforward.
“The Sabah Government would issue a sukuk with a sustainable product framework that defines eligible activities, whether mangrove restoration, fishery projects or blue carbon initiatives. These sukuk would then be sold to investors interested in supporting environmental projects.
“I think given Sabah’s reputation as a world-renowned diving destination with a robust tourism sector, I know it will not be a problem to attract blue sukuk investors,” she said.
The proceeds from the sukuk would fund eligible blue economy activities. But here is where it gets interesting, whereby the projects funded could themselves generate carbon credits, which could be traded on Sabah’s Blue Credit carbon platform.
“The same carbon credit can also be traded on the Sabah Blue Credit carbon platform and whatever revenue that you have there can also be used as additional revenue to even defray your sukuk obligations,” she said.
In other words, the conservation projects could help pay for themselves by generating tradable carbon credits.
“If you were to do both this together, I think it will be a very enticing proposition for you to be able to put Sabah on the map,” Ranita said.
For the Blue Sukuk to succeed, Ranita pointed out several key requirements.
“First, project activities must align with United Nations Sustainable Development Goal 14 Life Below Water and SDG 6 Clean Water and Sanitation.
“Second, there must be monitoring, reporting and verification systems with measurable key performance indicators, such as carbon emissions avoided or hectares of mangrove restored.
“We need to have this because the blue bond investors need to know that whatever bonds that they subscribe to has impact and impact needs to be proven by the Key Performance Index set here,” she said, adding that blended financing through grants, guarantees or concessionary loans, especially for newer technologies like Ocean Thermal Energy Conversion is also needed.
