Financial Sector Is Important In Addressing Climate Change Concerns

The financial sector plays a crucial role in helping the economy and society mitigate climate change risks, and its response in the coming years will affect how financial institutions interact with businesses going forward, said Bank Negara Malaysia (BNM) deputy governor Datuk Jessica Chew Cheng Lian.

As Malaysia is committed to achieving its net zero emissions target by 2050, she noted that the financial sector’s taxonomy is expected to encourage the flow of capital towards supporting transition activities, aside from building a strong foundation for risk assessments and disclosures.

“The taxonomy does not adopt a binary classification of green and brown activities, but it recognises credible efforts by businesses to actively reduce the harm that their operations might be posing to the environment during their transition.

“Based on an analysis of their material exposures to climate-related risks, financial institutions will be required to take actions to address high and unmitigated exposures,” she said in a speech during the ‘Developing and Financing Green Housing in Asia’ conference here on September 21.

Chew said as part of its mandate to manage risks to financial stability, BNM expects financial institutions to understand how climate-related risk drivers could impact their risk exposures, including credit, market, and insurance risks from their lending, underwriting and investment activities.

“We expect financial institutions to be able to identify, measure and manage these risks well,” she said.

She also said the central bank believes that the financial sector could and should play a catalytic role in the transition towards a low-carbon economy through its control of resources that fuel the economy.

The central bank has also strengthened the standards that it expects financial institutions to meet and manage climate-related risks, including the expectation for financial institutions to work with and support their customers in managing the transition.

If businesses are committed and willing to undertake changes to reduce their greenhouse gas emissions, the financial sector should help them make that transition, she added.

Chew noted that there is much more that financial institutions in Malaysia can do to unlock the potential to scale up green housing finance.

She said that currently, financing activities are largely focused on the end-consumer, which is just one part of the housing value chain.

“The incorporation of green considerations in funding extended to developers and those involved in the construction activities — such as engineers and raw materials suppliers — remains largely untapped and can help offset or spread over time the generally high upfront costs associated with green buildings.

“Protection products, such as green housing insurance, also remains an unexplored market in Malaysia despite the steadily increasing number of green buildings in the country,” said Chew.

Novel features such as additional protection for non-certified green buildings to rebuild in green when damage occurs could also be explored, she added. 

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