On 25 February 2021, the Bank Negara Malaysia (“BNM”) and Securities Commission Malaysia (“SC”), via the Joint Committee on Climate Change (“JC3”), released a joint statement in relation to greening in the financial sector in Malaysia. The joint statement provides for the following commitments by the JC3:
- Develop guidance documents on risk management and scenario analysis. This will complement the Climate Change and Principles-Based Taxonomy (“CCPT”) and advance climate risk management and stress testing practices in the financial sector;
- Support the voluntary implementation of climate-related disclosures that are aligned with the Task Force on Climate-related Financial Disclosures (“TCFD”) recommendations. This includes working with the industry to contextualize the recommendations to the Malaysian economy and financial system, and develop practical resources to help companies that interact with financial institutions to improve their disclosures;
- Broaden engagements with relevant stakeholders, including Government agencies, institutional investors and market intermediaries to identify and address enabling conditions for the structuring of green financial products and solutions; and
- Deepen technical capacity building programs, focusing in particular on strengthening the practical knowledge and tools to support climate-related disclosures, climate risk management and climate scenario analysis. JC3 will also organize a follow-up flagship event to the 2019 Regional Conference on Climate Change (the inaugural event that launched JC3) in the second half of this year.
The JC3 also requires financial institutions licensed by BNM to begin capturing exposures based on the CCPT for internal risk management and supervisory purposes over the course of 2021.
This announcement and clear list of commitments can be described as earth-moving (pun intended) for the financial industry. For 2021, KPMG expects that all financial institutions licensed by BNM will have to:
- Embark on a gap assessment to capture their climate change exposures and evaluate the risk based on their internal risk management practices;
- Adopt TCFD recommendations for climate related disclosure; and
- Look into developing more innovative solutions and structuring of green financial products and solutions.
For their clients, listed corporations (especially non-financial institutions) should start to look at how to enhance their climate related disclosures to ensure that they are not impacted by the application of the CCPT by financial institutions in Malaysia, and to take advantage of the various green financial products developed.
The opportunities arising from this development ripples on to cover improving access to green financing. Companies that are able to demonstrate they are managing their climate change risks would be able to benefit from lower costs of lending in terms of interest rates. Financing sustainable businesses has strong financial and broader societal benefits, which will flow on to the betterment of Malaysia’s economy.