Malaysian FIs to Pilot Implementation of Climate Risk Taxonomy

This month, 12 financial institutions will commence a pilot to implement a principles-based taxonomy for classifying climate risk, one of a number of initiatives to build climate resilience.

BNM (Bank Negara Malaysia) and the SC (Securities Commission) have issued a joint statement outlining the financial sector’s key priorities for building climate resilience in the coming months.

Malaysia’s Joint Committee on Climate Change (JC3) held its third meeting on 14 September 2020, where members discussed progress on initiatives to build climate resilience within the local financial sector, and the focus of priorities for the next 12 months.

BNM and the SC say that members affirmed the importance of climate change management given the significant risks and systemic impact that climate events can inflict on lives and livelihoods.

“The current COVID-19 pandemic has highlighted the far reaching impact of similar global events, with demand and supply shocks spreading across borders,” the joint statement said. This has raised a further sense of urgency to the work of JC3 in supporting efforts to build resilience against climate and environmental-related events, and secure an orderly transition to a more sustainable economy.”

In December 2019, BNM consulted on a discussion paper on climate change and a principles-based taxonomy for classifying climate risk.

According to the joint statement, a revised document will be published in early 2021, taking into account comments and suggestions received from more than 80 institutions. It will include enhancements to the classification system and scope of application, as well as additional guidance for implementation.

In parallel, 12 financial institution members of the JC3 will participate in a pilot implementation of the taxonomy, scheduled to commence this month.

During Monday’s meeting, members also provided input on the development of reference documents on climate risk management and scenario analysis which will be undertaken by a Jc3 sub-committee over the coming months to further strengthen risk management practices in the financial sector.

Members also discussed the results of an assessment conducted on climate-related disclosure practices across a sample of financial institutions operating in Malaysia based on recommendations of the TCFD (Task Force on Climate-related Financial Disclosures). Insights from the assessment will inform planned work on developing an application guide on climate-related disclosures, which will commence shortly as part of initiatives to improve the quality of disclosures.

Members discussed demand and supply conditions shaping the current green finance landscape in Malaysia, as well as key challenges to financial sector participants, including the paucity and fragmentation of information, gaps in technology knowledge, coordination issues and low visibility on national strategies. They also discussed plans to develop more structured technical capacity building programmes for financial industry participants.

As part of their priorities over the next 12 months, members committed to work towards wider adoption of the TCFD recommendations and advance concrete actions to pave the way for the adoption of disclosure standards by the industry in the immediate future.

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