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BANK Negara Malaysia’s (BNM) latest environmental framework reflects a carefully considered strategy for what has been described as a high-stakes journey to reaching net zero by 2050.
Its strategic initiatives are designed to ensure the financial sector plays a crucial role in advancing the country’s climate objectives.
On Aug 20, The Malaysian Reserve (TMR) published an article titled “The Great Green Gamble: Malaysia’s Ambitious Push Towards Net Zero”.
It highlighted the uncertainties and challenges inherent in Malaysia’s green transition, emphasising the risks associated with Malaysia’s bold environmental targets.
Responding to the article, BNM reiterated its commitment to mitigating risks through a comprehensive framework designed to facilitate and finance the green transition while managing climate-related risks.
Central to BNM’s approach is the development of a robust ecosystem that includes a principles-based transition taxonomy, data infrastructure, enhanced disclosure standards and capacity building across the financial sector.
These foundational elements are intended to support businesses and clients as they adopt sustainable practices, addressing one of the core concerns raised.
BNM also highlighted collaboration as a key theme in its strategy, reflecting the emphasis on the need for a unified effort across sectors to tackle climate change.
In a written statement to TMR, BNM said its partnership with the Securities Commission Malaysia (SC) and industry players through the Joint Committee on Climate Change (JC3) is designed to coordinate, drive and support an industry-wide response to climate risks.
The effort addresses key areas such as risk management, governance, product development and bridging data gaps, aligning the financial sector’s actions with national policies and strategies.
Apart from that, BNM’s pilot projects, namely Greening Value Chain and Greening Industrial Parks, demonstrate a practical approach to scaling up climate finance, particularly for small and medium enterprises (SMEs), a sector identified as vulnerable in the green transition.
In July, the JC3 also approved the creation of the Climate Finance Innovation Lab (the Lab), which is designed to speed up decarbonization efforts through innovative financial solutions.
According to BNM, the Lab will support the pilot projects initiated by JC3.
Along with the Transition Finance Guidance that JC3 is currently developing, this initiative is anticipated to broaden credible climate finance opportunities further.
Recognising the need to support SMEs in their decarbonisation efforts, the SME Focus Group under JC3 concentrates on raising awareness, building capacity, promoting green certification and helping SMEs disclose data.
The ESG (Environmental, Social and Governance) Jump-start portal, launched in October 2023, provides SMEs with essential information to begin their sustainability journey.
BNM also offers special funds, such as the RM1 billion Low Carbon Transition Facility and the RM1.1 billion High Tech and Green Facility, to help SMEs green their operations and support their transition efforts.
Moreover, BNM’s release of the JC3 Data Catalogue (DC) in 2022 offers a crucial resource for the financial sector, providing important information on the availability and accessibility of climate and environmental data.
However, the first version of the DC is tailored to address the data needs of a limited group of stakeholders, primarily members of JC3 and its sub-committees.
Its primary objective is to provide a snapshot of data availability. As usage and the volume of data grow, the DC is anticipated to be updated and expanded over time.
Following that, at its 13th meeting on July 23, BNM deputy governor Datuk Jessica Chew Cheng Lian announced that the committee plans to release the third edition of the JC3 Climate Data Catalogue in December 2024.
She noted that the updated cata- logue will include around 28 new unique data items, with a focus on biodiversity and nature-related financial risk data, adding to the 128 unique data items already featured in the catalogue.
Nevertheless, BNM highlighted the challenges in collecting and using climate data, particularly in the financial sector.
One issue is that data is often too broad, while the financial sector needs more detailed information. Legal restrictions also make it difficult to publish climate-related data.
Additionally, the decentralised way data is compiled and published makes it harder for users to access and compare data.
There is also a lack of capacity and motivation for data disclosure due to limited expertise and tools for collecting and processing data.
This makes it challenging for organisations to share the information needed to address climate issues effectively.
To address these challenges, the report recommended that common definitions and methodologies be adopted for climate data in alignment with established standards.
There is also a need to promote greater data disclosure by encouraging open data practices and improving access to climate data, especially for smaller firms.
Lastly, leveraging technology, like machine learning and satellite imagery, can help bridge data gaps and improve the overall quality and use of climate data for better decision-making.
“The JC3 continues to intensify efforts in improving access to crucial data needs of the industry, covering data on vehicle emissions, floods and renewable and non-renewable energy components,” said BNM.
Furthermore, BNM’s involvement in regional initiatives, such as the development of the ASEAN Taxonomy for Sustainable Finance, highlights its commitment to aligning Malaysia’s green finance framework with regional and international standards.
The alignment addresses concerns raised in the article regarding the interoperability of Malaysia’s green finance initiatives with global practices.
As Malaysia continues its path towards achieving carbon neutrality by 2050, BNM’s strategic initiatives are crucial in navigating the complexities of the green transition.
The central bank’s efforts to create a supportive financial ecosystem, foster collaboration and enhance data accessibility reflect a measured response to the challenges outlined in TMR’s earlier coverage.
These steps indicate that while the journey towards net zero is fraught with challenges, BNM is taking deliberate actions to mitigate risks and ensure that the financial sector remains a strong pillar in Malaysia’s quest for sustainability.
Despite its focus on establishing the financial ecosystem, fostering collaboration with key stakeholders and developing supportive frameworks like the transition taxonomy and data infrastructure, BNM did not fully address several crucial questions, particularly the financial strategies Malaysia intends to employ to achieve its net-zero 2050 goal and who will bear the financial burden of Malaysia’s transition to net zero.
Source: https://themalaysianreserve.com/2024/09/11/bnms-comprehensive-plan-to-support-malaysias-net-zero-ambitions/