How Malaysia’s Central Bank is Tackling Climate Change with Green Finance

Climate change is a global challenge that affects everyone, especially the financial sector. That’s why the Central Bank of Malaysia (Bank Negara Malaysia) is taking proactive steps to build a green and resilient financial system.

In a recent speech at the Green Financial Market Conference, Deputy Governor Marzunisham Omar outlined the two critical roles of the financial sector in mitigating climate change:

1. greening finance and

2. financing green.

Greening finance means enhancing the resilience of financial institutions against climate risks, such as physical and transition risks.

Financing green means channelling funds to decarbonise the economy and support sustainable development.

To achieve these goals, Bank Negara Malaysia has been working closely with the financial sector and the government to lay the necessary financial ecosystem and infrastructure.

One of the key platforms for this collaboration is the Joint Committee on Climate Change (JC3), which focuses on five areas:

-> risk management,

-> governance and disclosures,

-> innovative products and solutions,

-> data gaps, and

-> technical capacity.

Bank Negara Malaysia has also issued a transition taxonomy, called the Climate Change and Principle-based Taxonomy (CCPT), to help financial institutions identify and classify economic activities that contribute to climate change mitigation and adaptation. This framework, along with the mandatory expectations on climate disclosures in 2024, will help minimise the risk of greenwashing.

But climate change is not only a threat, but also an opportunity. As the economy decarbonises and businesses green their operations, there are abundant opportunities for investment and innovation. For instance, the Malaysian energy sector alone needs RM1.85 trillion in new investments up to 2050.

The capital market is key to meeting these green and greening investment needs. Malaysia has a well-developed and resilient capital market, with a strong presence in the sukuk market. In 2021, Malaysia issued the inaugural sovereign US Dollar Sustainability Sukuk that was oversubscribed by 6.4 times.

Bank Negara Malaysia urges market participants to actively leverage its financial market infrastructure to issue and deposit foreign currency capital market instruments in Malaysia, especially in sustainability initiatives.

The challenges posed by climate change are real and present. We can no longer be passive. We must embrace courage and be resolute. The seeds of concrete actions we sow today are key to cultivating a more sustainable future for our generations to come.

You can read the full speech here.

Bank for International Settlements – BIS: https://lnkd.in/gFzBb64p

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Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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