Bank Negara Governor Tan Sri Nor Shamsiah Mohd Yunus in her speech at the launch of the joint report with the World Bank, Exploring Nature-related Financial Risks in Malaysia said that the local financial sector has stepped-up response to the urgent and existential threat posed by climate and environment-related risks.
She said joint efforts by regulators and the industry to better understand, assess and manage climate-related risks have made substantial progress. In the Financial Sector Blueprint 2022-2026 recently released by Bank Negara Malaysia, has called for the financial system to facilitate an orderly transition, towards a greener economy.
Key areas include channeling financial flows and increasing funding solutions towards a greener economy; strengthening supervisory oversight and addressing the appropriate treatment of climate and environment-related risks in prudential frameworks, and addressing knowledge and data gaps around these risks.
The NGFS Study Group on Biodiversity and Financial Stability, of which the Bank Negara is a member, has investigated growing evidence that biodiversity loss has implications on the economy and financial stability. Exploratory studies have also been conducted in the Netherlands, France, Brazil, Mexico – and now Malaysia – to understand the dependencies and impacts of the financial sector on biodiversity.
Touching on the importance of understanding the interactions between biodiversity and climate resilience she says it is important from at least two perspectives. First, it crucially promotes the effectiveness of current efforts to tackle the climate crisis. Second, it enables the financial sector to leverage climate initiatives to accelerate the equally pressing response needed to address broader nature-related risks. This includes initiatives to build capacity and address data gaps. Consistent with these considerations, the Climate Change and Principles-based Taxonomy adopted for the financial sector in Malaysia incorporates the principle of “do no significant harm to the environment,” which requires an economic activity to protect healthy ecosystems and biodiversity.
Tan Sri Nor Shamsiah adds the tourism sector for instance benefits from the existence and maintenance of lush rainforests and marine life. The manufacturing, agriculture, and construction sectors depend on land, soil, plants, animals, water, and minerals as inputs and enablers of production. With Malaysia dependent on biodiversity, the collapse of these systems could pose a serious threat to society and the economy.
The findings of this report highlight the scientific community’s continuous issuance of ‘code red for humanity,’ and with recent events, including the pandemic, floods, and bushfires, the message could not be clearer.
The Governor said while the primary responsibility for addressing these priorities rests with governments, the financial industry and authorities have a critical interest in deepening our understanding and appreciation of the interactions between climate and nature-related risks – because how these risks evolve both affect and are affected by the actions of financial institutions. This would enable us to also seize opportunities to tackle these “twin challenges” in an integrated manner.
