BNM focused on two key initiatives with the World Bank and Taskforce on Nature-related Financial Disclosures (TNFD)

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Why this is useful for you: If you are an investor in the Malaysian financial sector, you should keep track of what BNM has in mind. Environmental disclosure is more important now. And BNM is requiring financial companies to conduct their business sustainably.

BNM’s new governor, Datuk Abdul Rasheed Ghaffour had a lot to say in the latest COP28. As the climate change agenda heats up (pun intended), central banks around the world are trying to take the lead in this.

Climate change is tightly connected with the financial sector.

This is how BNM describes this. Weather conditions are getting more extreme and are causing more property damage. This indirectly affects household and business finances. Insurers would have to pay out more, and banks take more losses on loans.

The impact extends to pressure on inflation, which is BNM’s mandate.

Climate change events cause decreases in agricultural productivity and increases food prices. This feeds directly into inflation. And BNM’s main policy is to keep inflation low.

Using Islamic finance to encourage the shift towards green finance.

Malaysia is the biggest market for Islamic finance. And BNM intends to leverage it to champion the green financing agenda.

Total financial institutions’ commitment is at US$43 billion.

Malaysian banks, insurers and other financial companies have committed this amount for ESG purposes so far. By 2026, BNM projects that half of new financing will be related to the climate.

Malaysia will need US$280 billion by 2050 to meet energy transition goals.

The Malaysian environmental minister plans to increase the share of renewable energy from 25% to 70% by 2050. It would need about RM10 billion every year for this. But it should be attainable considering that the government spent RM45 billion for fuel subsidies in 2022.

Develop a risk assessment guide with TNFD for Malaysia.

Many Malaysian companies (and even global) are having a hard time understanding ESG. This risk assessment guide will enable them to understand how nature-related events impact them, and what they can do about it.

Facilitate development of green financial instruments with the World Bank.

To make things clear, BNM and World Bank’s role here is to introduce rules and regulations for green financial instruments. Because there isn’t clear guidelines, companies aren’t committed yet. This will help Malaysian companies get clarity.