Bank Negara Publishes Exposure Draft On Climate Risk Management And Scenario Analysis

Bank Negara Malaysia publishes an exposure draft on Climate Risk Management and Scenario Analysis which sets out guidance for financial institutions to incorporate them into operations.

The proposed specific requirements and expectations are to ensure that financial institutions strengthen the management of financial risks stemming from climate change to enhance the resilience of the financial sector against climate-related risks and to facilitate an orderly transition to a low-carbon economy.

The 50-page exposure draft is to complement the Climate Change and Principle-based Taxonomy (CCPT), the Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF), as well as the VBIAF Sectoral Guides.

With respect to scenario analysis and stress testing, the Central Bank will be providing additional guidance to the financial institutions in a forthcoming discussion paper on Climate Change Stress Test, set to be released in 1Q 2022. The discussion paper is intended to solicit feedback to gauge industry readiness and to identify potential challenges in areas such as design of climate scenarios, coverage of financial exposures, methodology, level of granularity and data gaps.

BNM invites written feedback on the proposed requirements, including suggestions on areas to be clarified and alternative proposals that the Bank should consider.

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