Malaysia Consults on Climate Risk, Disclosures for Finance Sector

Guidance to be issued on climate risk management, scenario analysis and TCFD-aligned disclosures.

Malaysia’s JC3 (Joint Committee on Climate Change) plans to shortly issue guidance on climate risk management, scenario analysis and climate-related disclosures for consultation.

The JC3 was set up in September 2019 as a platform to pursue collaborative actions for building climate resilience within the Malaysia financial sector. The task force is co-chaired by the SC (Securities Commission) and BNM (Bank Negara Malaysia) and comprises Bursa Malaysia and 19 other financial industry players.

The Reference Guide on Climate Risk Management and Scenario Analysis – to be issued for consultation this month – will set expectations for financial institutions to integrate climate-related risks considerations in their business and risk strategies.

JC3 members welcomed the upcoming consultation at their sixth meeting on Thursday (9 December), where they discussed the progress of its current initiatives and priorities for 2022 to further strengthen the capacity of the Malaysian financial sector in addressing climate risk.

A TCFD-aligned application guide for disclosures on climate-related risks by financial institutions will also be issued for public consultation in January 2022.

At the meeting, JC3 members supported the proposal for financial institutions to make mandatory TCFD-aligned climate-related financial risk disclosures from 2024, whereby all financial institutions will be required to minimally adopt the basic recommendations set out in the application guide.

Financial institutions will also be encouraged to adopt stretch recommendations in line with their climate risk exposure and complexity of operations. Financial institutions regulated by BNM will be 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,” the JC3 said in a statement.

The JC3 said disclosure guides for businesses will also be developed in 2022.

The JC3 meeting also highlighted that more sustainability-related financial products and solutions are being offered among members – including green project finance, green mortgages and sustainability-linked loans and protection.

Members 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.

The JC3 will publish a more detailed report in 2022 on the insights gained from its various engagements and surveys, focusing 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, the JC3 members have endorsed the specialised level training programmes which will be introduced in 2022. These programmes will focus on climate risk management, governance and reporting, financial solutions, and social sustainability.

On data work, JC3 members endorsed the top climate-related data items that would be the focus of a new data catalogue in development that will serve as a reference for the financial sector in 2022.

JC3 members discussed the ASEAN Taxonomy for Sustainable Finance, the first version of which was released by the ASEAN Taxonomy Board in November. Members noted that the ASEAN Taxonomy is aligned with Malaysia’s own Climate Change and Principles-based Taxonomy, which financial institutions have already started using this year.

For 2022, the JC3 has pledged to further strengthen the capacity of the financial industry in managing climate-related risks and support the scaling up of green finance. This will start with a Scenario Analysis and Stress Testing Workshop, to be held on 13 and 14 January.

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