Joint Statement by Bank Negara Malaysia and Securities Commission Malaysia - Advancing the Financial Sector’s Response to Climate Risk

10 December 2021

The Joint Committee on Climate Change (JC3) held its sixth meeting on 9 December 2021 to discuss the progress of its current initiatives and priorities for 2022 to further strengthen the capacity of the Malaysian financial sector in addressing climate risk.
JC3 members welcomed the finalisation of the Reference Guide on Climate Risk Management and Scenario Analysis that will be issued for public consultation in December. The Reference Guide sets expectations for financial institutions to integrate climate-related risks considerations in financial institutions’ business and risk strategies. A TCFD[1]-aligned Application Guide for disclosures on climate-related risks by financial institutions will also be issued for public consultation in January 2022. As an extension of this work, disclosure guides for businesses will be developed in 2022.
JC3 members supported the proposal for financial institutions to make mandatory TCFD-aligned climate-related financial risk disclosures from 2024. This means that all financial institutions will minimally adopt the basic recommendations set out in the Application Guide, and are encouraged to adopt stretch recommendations in line with their climate risk exposure and complexity of operations. Financial institutions regulated by BNM are expected to work towards adopting stretch recommendations that are fully aligned with TCFD disclosures by end 2024. This will not only provide greater transparency on how climate risk considerations are integrated into business decisions and risk management of financial institutions, but will also help drive action towards more effective risk mitigation and better adaptation to climate change. JC3 will seek feedback on this proposal as part of its consultation on the Application Guide and Reference Guide on Climate Risk Management and Scenario Analysis.

As part of its outreach programme, JC3 organised an engagement session with the CEO Action Network (CAN)[2] to exchange views and identify opportunities for collaboration between the financial sector and the corporate sector in Malaysia in addressing climate risk. More sustainability-related financial products and solutions are also being offered among JC3 members. This includes the financing of green projects, green mortgages and sustainability-linked loans and protection. Members also identified the top three challenges in driving the sustainability agenda - poor data quality and availability, lack of incentives, and low awareness of green finance solutions in the market. JC3 will publish a more detailed report in 2022 on the insights gained from its various engagements and surveys. The report will focus on opportunities and challenges for the financial industry to meaningfully support the climate transition.

Following the completion of the climate risk-related Foundation Level training programmes in 2020 and 2021, JC3 members endorsed the Specialised Level training programmes which will be introduced in 2022. The programmes will focus on climate risk management, governance and reporting, financial solutions, and social sustainability.

On data work, members endorsed the top climate-related data items that would be the focus of JC3 in developing a data catalogue for reference by the financial sector in 2022. JC3 members also deliberated on the financial industry’s role in supporting Malaysia’s commitment to achieve Net Zero GHG Emissions at the earliest by 2050, following a presentation on Net Zero Pathways for Malaysia by WWF-Malaysia and BCG (summary of presentation can be found here). Members also discussed the ASEAN Taxonomy for Sustainable Finance, Version 1 released by the ASEAN Taxonomy Board (ATB) in November 2021[3]. Members noted that this is aligned with the Climate Change and Principles-based Taxonomy.

For 2022, the JC3 will further strengthen the capacity of the financial industry in managing climate-related risks, and support the scaling up of green finance. To kick-start the JC3 capacity building programmes for 2022, a Scenario Analysis and Stress Testing Workshop will be held on 13 and 14 January. JC3 also remains committed to support the transition journey of corporations and their supply chain towards sustainable practices, and will continue to engage and collaborate with the business community, government agencies and relevant stakeholders.

1 Task Force on Climate-related Financial Disclosures
2 A peer-to-peer informal network of CEOs of leading Malaysian businesses focused on sustainability advocacy, capacity building, action and performance.
3 https://www.sfinstitute.asia/the-asean-taxonomy/

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