BNM to finalise climate change and principles-based taxonomy soon, says governor

KUALA LUMPUR (Oct 6): Bank Negara Malaysia (BNM) will soon finalise a “Climate Change and Principles-based Taxonomy” to help align understanding and assessments of risk, says governor Datuk Nor Shamsiah Mohd Yunus.

She said the taxonomy would provide a common language to categorise economic activities based on their impact on climate change.

“It is also intended to facilitate financial flows to activities that support the transition to a lower carbon economy,” she said when delivering a keynote speech at the launch of the Sustainable and Inclusive Finance Forum here, today.

Nor Shamsiah said the taxonomy would also be important for external stakeholders to hold financial institutions to account for their climate risk commitments.

“We are working with financial institutions in Malaysia to improve transparency on how climate risk considerations are being integrated into business decisions.

“To this end, we are progressing plans to further encourage financial institutions to adopt the Task Force on Climate-related Financial Disclosures (TCFD) recommendations for climate-related disclosure,” she said.

She said ensuring the integrity of disclosure is key, and this needs to reflect an enterprise-wide commitment to climate risk mitigation and adaptation.

“This not only improves credibility and trust on the part of stakeholders, but also helps create opportunities for growth and for achieving stronger business resilience,” she said.

Noting that this is a mission that involves many different parties, hence, Nor Shamsiah said BNM is working closely with the Securities Commission Malaysia, the financial sector and other partners, through the Joint Committee on Climate Change, to drive and coordinate the financial sector’s collective response to climate risk.

“We also actively engage with the relevant government ministries and agencies to align financial sector and national climate strategies, and address barriers to green financing and investments,” she said.

Touching on green sukuk, Nor Shamsiah said Malaysia continues to be at the forefront of green sukuk, which caters to the needs of investors that prefer investments with a positive environmental impact, particularly those which go towards funding activities or technologies that support a low-carbon and climate resilient society.

For instance, she said Sukuk Prihatin was recently launched by the Malaysian government as an effort to combat COVID-19 and support economic recovery.

“These include financing micro small and medium enterprises, especially female entrepreneurs, supporting grants for research into infectious diseases, and improving connectivity for rural schools. Investors also have the option of donating the principal amount upon maturity,” she said.

On digitalisation, Nor Shamsiah noted that the COVID-19 pandemic had accelerated the push towards greater digitalisation.

As countries move ahead in adopting more cutting-edge technologies, she said it would be critical to have three key imperatives in mind, namely: the digitalisation agenda must be inclusive; digitalisation efforts must combine both demand and supply-side aspects; and digitalisation efforts must be complemented by an enabling policy environment.

In advancing these imperatives, Nor Shamsiah said the financial sector, particularly digital financial services, can become one of the key foundational infrastructures for more expansive digitalisation efforts.

“Digital payments infrastructure is often seen as one of the key elements of any digital economy. Such platforms not only bring efficiencies to retail customers and small-scale transactions, but also would provide a rich ‘foundation’ of data, upon which other innovations and overlay services can be built,” she said.

Jointly organised by BNM and the World Bank Group, the four-day Sustainable and Inclusive Finance Forum, starting today, will be focusing on issues pertaining to new sustainable and inclusive finance solutions that Malaysia and other developing countries are tapping into to support a resilient recovery from COVID-19.

Source: TheEgdeMarkets