BNM and SC Calls for Financial Institutions to Ramp up Response to Climate Change

BNM and SC Calls for Financial Institutions to Ramp up Response to Climate Change

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The Joint Committee on Climate Change (JC3) has emphasized the need for the financial sector to strengthen its response to climate change.

Established in 2019, JC3 is chaired by Bank Negara Malaysia (BNM) and the Securities Commission Malaysia with other members including senior representatives from Bursa Malaysia and various industry players.

During its seventh meeting, JC3 discussed the progress of action plans and priorities for 2022 as well as the effects of recent global developments on transition efforts and policy responses of countries.


Some of the key updates on the work of sub-committees established under JC3 include:

Contribution to BNM’s exposure draft on Climate Risk Management and Scenario Analysis

Issued in December 2021, the exposure draft sets out regulatory expectations on the management of climate-related risks by banks, insurers and takaful operators.

This will complement the implementation of the Climate Change and Principle-based Taxonomy (CCPT) by financial institutions as well as plans underway by Bank Negara Malaysia to conduct climate-related stress tests for the financial sector in 2024.

The exposure draft is expected to be finalised in the second half of 2022.

Issued the Task Force on Climate-related Financial Disclosures (TCFD) application guide 

The guide issued in March 2022 is meant for Malaysian financial institutions for public consultation.

It outlines key recommendations and provides guidance to assist financial institutions in preparing for the climate-related disclosures.

Commenced work to develop a Climate Disclosure Guide for Malaysian Businesses.

This guide aims to improve the quality of and access to information on business resilience to climate-related risks, in turn promoting financial flows to mitigation and adaptation actions, including among small and medium-sized enterprises (SMEs).

Members also agreed to identify cross cutting and strategic issues stemming from the exposure draft issued by the International Sustainability Standards Board (ISSB) on Sustainability Disclosure Standards and consider providing a collective response, particularly from the perspective of a developing economy, to the ISSB.

Completed the first series of specialised level training programmes for the financial sector.

This covers the implementation and application of the CCPT, scenario analysis and stress testing.

The next series will focus on governance and reporting, with accompanying workshops on data applications and the implementation of TCFD.

Progressed work on the development of a data catalogue for reference by the financial sector.

The catalogue will identify and map available climate data sources to support the critical data needs for identified use cases that include investment and lending decisions, macroeconomic modelling, stress testing, scenario analysis and product development.

Published the report on the Sustainable Finance Landscape in Malaysia

The report captures key insights from the extensive outreach programmes and a survey on sustainability practices among financial institutions in Malaysia undertaken by JC3 in 2021.

The report assesses the current state of sustainability practices and product offerings within the financial sector, and highlights the opportunities and challenges for the financial industry to meaningfully support the climate transition.

Datuk Zainal Izlan Zainal Abidin

Datuk Zainal Izlan Zainal Abidin

Datuk Zainal Izlan Zainal Abidin, Deputy Chief Executive, Securities Commission Malaysia and Co-Chair of JC3,

“Financial institutions are initiating steps to embed climate risk in their strategy and risk management framework, and are making considerable progress in committing to Net Zero targets.

 

There is also an increasing supply of green financial and investment products in the market.”

Jessica Chew

Jessica Chew

Jessica Chew, Deputy Governor, Bank Negara Malaysia and Co-Chair of JC3 said,

“We expect financial institutions to adopt the stretch recommendations set out in the Application Guide to encourage positive cascading effects on economic activities that interact with the financial sector.

 

Given the significant financial impact of climate-related risks, this will also improve market transparency on how financial institutions integrate climate risk considerations into business decisions and risk management”.

 

 

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