BNM: Financial sector should play catalytic role in low carbon economy

KUALA LUMPUR: The financial sector can and should play a catalytic role in the transition towards a low-carbon economy as the sector is uniquely placed to do this given its nexus with businesses, households, the government and the greater resources than most.

Becoming a member of the Network of Central Banks and Supervisors for Greening the Financial System ( NGFS) had enabled Bank Negara Malaysia (BNM) to pursue these objectives with greater speed, agility and confidence, said deputy governor Jessica Chew.

“Ultimately, this is a global challenge and we believed we needed to be a part of the global solution by cooperating with like-minded institutions that share similar challenges and priorities,” she said in an article on the NGFS website.

BNM became an NGFS member in October 2018, becoming one of two early members from Asean to join the group.

Chew said BNM’s climate strategy comprised of five key thrusts which included engagement and capacity building, integrating climate risk within macroeconomic and financial stability assessments, strengthening regulatory and supervisory expectations for managing climate risks, creating an enabling environment for green financing and investment as well as leading by example.

Its climate strategy is supported by seven internal workstreams that are coordinated by an internal climate strategy unit that reported to the senior management of the bank.

In recognition of the importance of a collective response, she said, a Joint Committee on Climate Change (JC3) was also established as a platform to drive and support climate change actions within the financial sector.

She said the JC3 was chaired by BNM and the Securities Commission Malaysia, with members and observers comprising the stock exchange, financial institutions, institutional investors and nongovernment organisations.

“Our climate journey in the past 12 months has seen several notable milestones, including the issuance of a Climate Change and Principle-based Taxonomy Discussion Paper, the issuance of the Value-based Intermediation Financing and Investment Impact Assessment Framework and the completion of a Report on the Roles of Asean Central Banks in Managing Climate and Environment-related Risk.

“BNM has benefited immensely from its collaboration with the NGFS since day one of its membership,” she said.

Chew said climate risk management in the financial sector remained, in many respects, a new area of practice in Malaysia.

She said through its involvement with the NGFS, the bank was able to more rapidly develop its internal capabilities and body of knowledge by participating in the deep technical work and by drawing extensively on the collective wealth of knowledge and experience of the NGFS community.

“As part of the community, we strive to bring a developing economy perspective to the deliberations and publications of the NGFS,” she said.

Chew said through its participation in various surveys, stock-takes, technical work and events organised by the NGFS, the bank was hopefully able to highlight some of the challenges faced by developing economies.

She said this included the trade- offs between managing transition and physical risks, and implementation challenges associated with climate mitigation and adaptation strategies in order to ensure that NGFS remained inclusive and relevant.

For BNM, understanding climate risks and taking actions to respond to climate risks is not an option.