In Malaysia, a study by the World Bank and Bank Negara Malaysia found that 54% of the commercial lending portfolio of Malaysian banks is to sectors that are highly or very highly dependent on ecosystem services, and 87% of banks’ commercial lending portfolio is channelled to sectors which would highly or very highly impact various natural assets and ecosystem services. This underscored the dependencies between nature and the economy, with the role of finance having the potential to amplify the impact both ways.
According to Assistant Bank Negara Governor Norhana Endut during her keynote speech titled Nature, Finance, Macroeconomy, she said it was due to a lack of understanding of the nexus that is inhibiting progress. She said while efforts are being put in place to assess nature-related risks, there remains a significant gap in understanding the nature and finance-economic nexus. The high interconnectedness of nature ecosystems makes it a formidable task to assess and manage the cascading and multidimensional effects of nature loss on the financial sector and the broader economy.
Importantly, the absence of mechanisms to measure and price the negative externalities of human activities and investments in nature and biodiversity also hinders our ability to fully account for these impacts.
Lack of data and limited analytical methodologies for valuing natural capital further exacerbate the challenge, making it difficult to assess the true economic value of nature and incorporate it into financial and economic models to form a basis for sound decision-making. Bridging these gaps she added will be critical to inform risk management practices, formulate effective policies, and deepen insights to mobilise finance for the conservation and restoration of nature.
The complex and multidimensional effects also complicate policy response. Furthermore, nature risks are often localised, whereby they are unique to specific locations and influenced by more specific environmental, economic, and social factors. As such, solutions that work in a particular location may not be suitable for another location.
Putting Policies In Place
With this understanding, broad policies, regulatory incentives, and pricing and market mechanisms can be put in place to recalibrate and align social and economic activities to actions that preserve nature and prevent biodiversity loss.
While challenges persist, she shared some of the advancements achieved thus far, by the financial sector in Malaysia.
Financial industry players have progressively integrated environmental factors into their evaluations of economic activities as part of their underwriting assessment. This was in alignment with Bank Negara’s Climate Change and Principle-based Taxonomy (CCPT). It is also partly supported by the due diligence questionnaire created collaboratively by the CCPT
Implementation Group and the World Wildlife Fund (WWF).
She said the questionnaires aid financiers in assessing an organisation’s environmental impact and its efforts to mitigate negative effects, aligning with CCPT guiding principle 3 which is ‘no significant harm to the environment’, and principle which is ‘remedial measures for transition’.
Meanwhile, the sub-committee on Bridging Data Gaps, which is a sub- committee under the Joint Committee on Climate Change, is also actively exploring ways to improve the collection of data relevant to nature-related risks. This will facilitate more granular analysis by both financial regulators and financial industry players.
The finalisation of the updated National Policy on Biological Diversity (NPBD) as well as the Strategic Roadmap
entitled Blueprint for Accelerating Biodiversity Action: A Strategic Roadmap for the Business and Private Sector in Malaysia that is currently in the works will be vital to achieving the transformational change we need.
As a testament to its commitment, the Government of Malaysia has also recently announced the planned issuance of RM1 billion biodiversity sukuk to accelerate biodiversity restoration efforts by rehabilitating degraded forests as well as increased allocation for conservation of protected areas by state governments from RM150 million in 2023 to RM200 million in 2024.
Norhaha ended her speech with a quote from Thanos, the villain from Marvel’s Avengers: Infinity War. To a question from Gamora, he said, and I quote, “Little one, it’s a simple calculus. The universe if finite, its resources is finite. If life is left
unchecked, life will cease to exist. It needs correcting.”
“While I don’t agree with him on wiping off half of the human population from this beautiful planet, we call Earth, to preserve endangered species and our environment, but he certainly has a point. We cannot go on unchecked.”
