KUALA LUMPUR: Maybank Islamic Berhad has recently executed a 10-year sustainability-linked Islamic Profit Rate Swap (IPRS) with Axis Real Estate Investment Trust (Axis-REIT).

The IPRS embeds an ESG key performance indicator (KPI) and sustainability performance target (SPT) to capture Axis-REIT’s broad aspirations across the ESG spectrum. Achieving this SPT would trigger a profit rate discount for Axis-REIT.

This is believed to be the first of its kind in the space of Islamic derivatives offered by an Islamic commercial bank in Malaysia.

An Islamic Profit Rate Swap (IPRS) is a widely accepted Islamic derivative product which is used to hedge profit rate risk. It is an agreement to exchange profit rates between two parties and is implemented through the execution of a series of underlying contracts to trade certain commodities to ensure it is Shariah-compliant.

The sustainability-linked IPRS hedges Axis-REIT’s profit rate exposure (from a similarly structured sustainability-linked financing) and at the same time aligns the IPRS pricing to their long-term ESG goals.

This innovative offering came about from a close dialogue between Maybank and Axis-REIT, and both parties agreed that a normal IPRS would not be sufficient. Instead, embedding an ESG KPI and SPT pairing into the IPRS would capture Axis-REIT’s broad aspirations across the ESG spectrum and accord Axis-REIT with a beneficial profit rate discount.

“We want to encourage our clients to adopt sustainable practices, so we’re offering this sustainability linked solution as an incentive. The introduction of the sustainability-linked IPRS is one innovation that we hope can advance our commitment to support and shape sustainable business models. We are pleased to have AXIS-REIT as our first client to be a part of this sustainability-linked IPRS agreement.

Many corporations across the world have made the Sustainability agenda an urgent business priority. Maybank Group is no exception to this and is always supportive of our customers who are in this journey as well. We are committed to support like-minded clients in structuring innovative solutions such as this while playing our role to contribute to the broader ESG agenda,” said Maybank Islamic CEO Dato’ Mohamed Rafique Merican.

“We are pleased to be the first public listed entity to participate in this sustainability-linked IPRS introduced by Maybank Islamic. This is a testament to our efforts towards prioritising the adoption of ESG and sustainable practices over the years. As the first Islamic real estate investment trust in Malaysia, Axis-REIT had always aimed to be at the forefront of adopting the industry’s best practices, where we had formally inaugurated sustainability reporting back in 2016 and have stepped forward to increase our emphasis on sustainability across our operations.

Going forward, we will continue to embrace and invest in ESG activities. It is no secret that incorporating ESG standards and sustainable practices have tangible results in business operations such as reduced risks and increased business opportunities,” said Axis REIT Managers Berhad CEO/Executive Director Ms. Leong Kit May.