Jessica Chew Cheng Lian: Keynote address - Intitute of International
Finance-Maybank Transition Finance Workshop
Keynote address by Ms Jessica Chew Cheng Lian, Deputy Governor of the Central
Bank of Malaysia (Bank Negara Malaysia), at the Institute of International
FinanceMaybank Transition Finance Workshop, Kuala Lumpur, 30 November 2023.
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It is my great pleasure to be here with you this morning. My thanks to Maybank and the
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IIF for the opportunity to say a few words at this workshop. This event comes close on
the heels of the recent JC3 Journey to Zero Conference and presents a timely
opportunity to continue the conversation on the financial sector's response to the
climate challenge.
Notwithstanding the varying levels of ambition observed across countries, industries
and companies, and possible decarbonisation pathways, achieving a just and orderly
transition towards net zero continues to be a common goal. That means enabling a
whole-of-economy transition to low-carbon activities. We know that green finance alone
will not deliver this; and therefore transition finance is equally, if not more, important.
For Malaysia, the stakes are high. It is estimated that 20% of Malaysia's GDP and 23%
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of the workforce are associated with hard-to-abate sectors of our economy . 60% of
SMEs claim that they are looking to increase business opportunities and create
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longterm value by strengthening ESG practices , and will need help to do so. Malaysia
faces sizable GDP losses from flood damages materialising within the present decade
without adaptation measures and investments to build supply chain resiliency. This is
backed by findings from a recently completed joint research project undertaken by Bank
Negara Malaysia and the World Bank which will be published soon.
Of late, we have been minded, however, of the need to be clear on what transition
finance is and what it is not. Let me elaborate.
First what transition finance is. OECD defines transition finance as finance "intended to
decarbonise entities or economic activities that are emissions intensive, may not
currently have a low-or zero-emission substitute that is economically available or
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credible, but are important for future socio-economic development" .
This has underpinned the development in Malaysia of the Climate Change and
Principle-based Taxonomy (or CCPT) and also, more recently, the ASEAN Taxonomy
for Sustainable Finance - both of which were among the first transition taxonomies to
come out globally. The CCPT's five-tier classification system incorporates two
transitioning categories (C2 and C3) intended to capture entities or economic activities
that are high-emitting but with clear remedial efforts being taken to reduce emissions.
In our ongoing reviews of data reported by banks under the CCPT, we observed that a
majority of bank exposures across all financial institutions are classified under climate
transitioning categories. Almost two thirds of financial groups in Malaysia have also set
climate targets, in some cases with explicit commitments to stop financing new coal
activities. Of these, a far fewer number of financial institutions (less than 10%) have
publicly declared that their targets are science-based.
These observations have prompted us to take a closer look at how banks evaluate
"meaningful" remedial efforts taken by their customers to reduce emissions, and how
such efforts line up with a plausible trajectory towards net zero targets. We are finding
considerable variation in practices across banks. There are many reasons for this,
including practices that need a bit more time to mature and persisting data gaps.
Through the Joint Committee on Climate Change, or JC3, we are actively addressing
these issues and gaining good traction.
That said, transition finance is not meant to provide a convenient cover for financial
institutions to preserve the status quo when it comes to valuable relationships with
highemitting customers that are not providing credible assurance of meaningful and
effective actions to reduce emissions. We must not confuse the goal of a just and
orderly transition, with helping extend the lifespans of high-emitting businesses that are
unable or unwilling to meaningfully reduce the climate impacts of their operations. More
critically, this cannot come at the expense of directing scarce capital away from
supporting the growth of innovative, unencumbered new green companies that are built
on a foundation of low-carbon strategies, or are supporting - if not leading - the
development of green technologies and solutions at scale.
So how do we ensure that transition finance is effective in helping meet urgent climate
ambitions rather than serving as an escape route to slow down progress? Allow me to
offer a few thoughts on this.
First, supporting businesses in transition must occur alongside a sustained, credible
growth in financing to businesses that are already climate-aligned, or that are
developing and scaling climate solutions. No or stagnant growth in the latter would be a
concern because it is likely to reflect inadequate ambitions by individual financial
institutions that, taken together, will undermine efforts to effectively support a
whole-ofeconomy transition.
It is therefore important that financial institutions are thinking about transition targets
with a clear and separate focus on also increasing the share of financing to businesses
that can develop and scale green technologies and processes, or that are already
operating under a low-carbon model.
To support this, the JC3 will build on the successful implementation of the Greening
Value Chain pilot programme to onboard more strategic pilot projects that will enable
the financial sector to test new public-private partnership modalities to support the
scaling up of green and transition finance. To this end, engagements have commenced
within JC3 to embark on a new pilot initiative for greening industrial parks, and expand
an existing pilot to encourage the adoption of green technology in the agriculture sector.
Second, rebalancing loan and investment books to support genuine transition finance
calls for a strategic shift that visibly cuts across a bank's business operations, customer
engagements, products and services, and financial and risk management, to deliver a
credible transition plan. Consistent with a just and orderly transition, it will be important
to consider the specific needs and ambitions of clients in the execution of banks'
transition plans. Also important will be strategies for facilitating a managed phase-out
from high emitting exposures that do not meet transitioning criteria in order to mitigate
risks of financial exclusion and stranded assets. But if transition plans are sitting
outside, and separate from, banks' core business and risk policies or operational
frameworks, then legitimate questions could be raised on the credibility of such plans.
Third, we expect banks' transition finance frameworks to be consistent with and capable
of being mapped to the guiding principles for classification under the CCPT. This will
serve to promote greater consistency in standards applied to evaluate meaningful
actions by businesses to align their operations with a low-carbon and climate-resilient
economy. To this end, JC3 will continue to lead efforts to develop and maintain
guidance and new use cases to support the implementation of CCPT by financial
institutions. In addition, JC3 will work with Ministries on developing a list of projects and
activities within identified sectors that can be categorised as green or transition
activities. Initial focus will be on the energy, mobility and carbon capture, utilisation and
storage sectors.
The financial sector in Malaysia has made important strides over the last five years to
put in place the foundational frameworks and build capabilities needed to manage
climate-related risks and support transition. These include the CCPT, disclosure
mandates that will take effect for financial institutions next year, the data catalogue,
improvements in climate governance, and ongoing work to advance capabilities in
climate risk management, scenario analysis, and stress testing.
We are by no means where we need to be on all these fronts, with much, much more
that we need to do. But we are encouraged by the step change we have seen across
financial institutions in recognising the importance of climate actions in their business
and risk considerations.
Over the coming decades, we will see one of the biggest economic transformations
globally, driven by the race towards net zero. The development of credible transition
plans represents a crucial further step towards enabling banks to meet the financing
needs for this transformation. You might say this is really where the rubber hits the road
- turning climate ambition into action. I urge banks to approach transition plans
thoughtfully - by understanding the impacts of climate change on the bank, setting
interim and long-term science-based targets, working closely with existing and new
customers to identify and support concrete climate actions and critically, taking a
strategic view of transition planning through a clear enterprise-wide strategy and
wellintegrated governance and operational framework for financing transition.
Let me end by noting just two more things that need to be said.
First, with much at stake, transition plans cannot be static. Already today, financial
institutions are facing a challenge to steer their customers towards prioritising climate
actions, given other seemingly more pressing priorities arising from challenging
economic conditions. We can and should expect such challenges to persist going
forward amid new shocks that may come. Transition plans need to be able to adapt to
unexpected changes to assumed scenarios with the aim of enabling banks to stay the
course towards meeting climate targets. The default position in such circumstances
cannot be to adjust targets, but rather adjusting strategies.
Second, financial institutions must take individual responsibility for advancing climate
actions, and in this light, a heavier responsibility must surely rest with the largest firms -
like Maybank and other large domestic banking groups. So your leadership matters
greatly and is not only seen, but will increasingly be judged by stakeholders and
counterparties against higher expectations.
On that note, let me commend you for this initiative, for climate actions are never taken
in isolation, and opportunities like this to cultivate a shared vision and alignment of
purpose are so essential to our journey.
Thank you.
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Institute of International Finance
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Global Green Growth Institute, ILO, World Bank, Department of Statistics Malaysia
(DoSM), BNM estimates
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"ESG Insights from Malaysian SMEs: Building A Better Future Together" by Alliance
Bank in partnership with UN Global Compact Network Malaysia & Brunei (UNGCMYB)
and SME Corporation Malaysia (SME Corp)
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OECD 2022 Guidance on Transition Finance