KUALA LUMPUR – Bank Negara Malaysia (BNM) is finalising a plan by the end of this year to make financial institutions disclose their climate risk plans in a transparent manner.
Governor Datuk Nor Shamsiah Mohd Yunus said that the move is consistent with the federal bank’s view on improving how financial institutions consider climate risks in their management approaches.
She said the central bank is exploring various options to encourage better risk-management approaches by outlier institutions, including assessments to reflect on consideration of climate risk.
She said this in her opening keynote address at the conference on Sustainability as a Business Strategy for Financial Institutions organised by the Joint Committee on Climate Change (JC3) this morning.
“Building on implementation-based taxonomy and the work by JC3 to address data gaps, the bank’s Financial Stability Committee has recently endorsed a four-year plan to prepare for industry-wide climate change at the counter-party level.
“This work is supported by efforts internally within the bank to model the macro-economic impact on climate shocks based on defined climate change scenarios.
“And we will be taking further concrete steps to improve transparency on the management of and exposure to climate related risk in the financial sector.
“To this end, BNM will finalise plans this year for mandatory climate risk disclosures by financial institutions in consultation with the financial industry,” said Nor Shamsiah.
Earlier she had stressed that financial institutions can no longer afford to avoid climate change or climate risk in their management approaches, seeing that they have broad powers over the community and businesses.
The governor pointed out that institutions such as banks provide services affecting the economics and financial strength of the public through their various facilities such as savings, investments, payments, and loans, for individuals and companies.
Nor Shamsiah said that financial institutions must recognise and reflect on the systemic nature of the climate challenge in their businesses and risk considerations while adopting and integrating an interdisciplinary approach to climate issues.
She elaborated that this means bringing together climate science and technology with economic, social, and behavioural considerations.
This means treating climate change not as a standalone issue but one embedded in an institution’s growth strategies, risk management and research operations.
“It means committing substantial investments to build the capacity and culture needed to make long term shifts to business activities that support and are aligned with climate mitigation and adaptation.
“It means making climate considerations an important part of social contracts between financial institutions and the communities that they serve, where financial institutions refocus on the role society needs them to play.
“That is helping households and businesses cope with the physical and transitional risk of climate change by providing financing and risk protection that will meet their needs,” said Nor Shamsiah. – The Vibes, June 23, 2021
