BNM to enhance regulatory decisions on climate change, says governor

BNM governor Tan Sri Nor Shamsiah Mohd Yunus said the central bank would review its prudential standards, where appropriate, and find solutions to address some challenges in Malaysia as an emerging economy.

"As an example, the spillover risks caused by the war in Ukraine and an ongoing decoupling of the Russian economy from the global economy would lead to upside risks to inflation, higher commodity prices and disruptions in supply chain.

"Such fears have led to fears that climate actions could be set back and at the same time, the war has brought forward the reality of a disorderly transition," she said at the 'IMF Policy Dialogue: Climate-Related Financial Risks and Green Finance in Asia and the Pacific' held virtually recently.

Nor Shamsiah said the central bank is now focusing on building a solid foundation and ecosystem for climate risk transition where BNM would create awareness and build expertise within the financial sector around climate change.

She also called for financial institutions, investors and businesses to become part of the solutions and embrace climate-aligned actions.

"We developed and rolled a principled-based taxonomy as a common classification system for economic activities that are climate compatible to guide investments, financing and underwriting decisions," she added.

The Joint Committee on Climate Change (JC3) was established in 2019 and chaired by BNM and the Securities Commission Malaysia to strengthen response to climate change.

Nor Shamsiah noted that more than 70 per cent of total financing for the private sector in Malaysia was in the form of bank financing and nearly half of the bank financing to businesses were for small and medium enterprises.

"It is obvious that banks have a crucial role in supporting the green transition. So banks are playing an important role in enabling the clients and businesses to adapt and accelerate the transition through their lending, underwriting, and investment decisions.

"As climate-related risks are different, our climate strategy for the financial sector has been guided by two key considerations. Firstly, the need to build capacity and retain the ability to adapt our framework and approaches as we learn more about climate risk drivers and their transmission channels.

"Secondly, the importance of ensuring the financial acceptance response to climate risk is aligned to internal strategy and framework, as well as policy and development to minimise social and economic dislocations," she added.