Adnan Zaylani Mohamad Zahid: Leaders setting the direction for
change
Opening remarks by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank
of Malaysia (Bank Negara Malaysia), at the Sustainability Leadership Programme for Financial
Institutions, 14 July 2021.
* * *
Introduction
Good afternoon and a very warm welcome to all. Thank you to IBFIM and the University of
Cambridge Institute for Sustainability Leadership (CISL) for this invitation to deliver the opening
remarks.
At the recent Joint Committee on Climate Change (JC3) Conference held last month, in his
address, Sir David Attenborough somewhat laid down the gauntlet, in particular for us in the
financial industry. "All of us, no matter who we are, have the responsibility to care for the planet.
The future of all humanity now depends on us and on none more than you in the world of finance.
You have the fate of the whole world in your hands." With this in mind, it is quite apt that we are
here, senior leaders in the industry, participating in this Sustainability Leadership Programme
over the next two days.
Over the past 18 months, many have felt the economic and social impact caused by the global
health crisis. At the same time, the world has not been spared from natural catastrophes due to
climate change. The latest being the mudslide in Atami, Japan. In Malaysia, more than 25,000
people were displaced from their homes due to severe flooding in several states between
November 2020 and January 2021. These, among many other incidents, are growing evidence
that climate change results in more frequent extreme weather events bringing destructive
consequences along with them.
While causing great upheaval, the pandemic and climate crisis provide an impetus for us to reset
and reprioritise resources to re-steer our economies and financial systems to be more
sustainable and inclusive. Islamic finance (IF) has large potential in this space. The concept of
vicegerency on earth in the Quran, which asserts mankind's responsibility to take on ownership
over preservation of wealth and resources on earth, as well as the universal values of maqasid
shariah resonates well with the principles of sustainability. As such, it is not surprising that
Islamic financial institutions have stepped up to meet this challenge, evidenced through the
Value-based Intermediation (VBI) initiative and practices by Islamic banks and takaful operators.
Consequently, as sustainability becomes a global movement, IFIs are in a position and
opportunity to take stewardship and influence financial developments, both within the financial
groups, sector, and the wider community. Action-oriented leadership is key and to this, I would
like to highlight three attributes that would complement the role of leaders assigned to this
arduous task.
Firstly, leaders must have the drive to cultivate a sustainability-focused culture within the
organisation. For this, leaders must set that tone from the top and more importantly, walk the
talk. A clear message that needs to resonate throughout the organisation is that the transition to
sustainability is a transformational journey that will deliver long-term, sustainable outcomes.
Though the results of this journey may not be immediate, the transition must begin without delay.
A key priority for financial institutions (FIs) will be to implement sustainability risk management
practices. The VBIAF sectoral guides for the palm oil, renewable energy, and energy efficiency
sectors, as well as the Climate Change Principle-based Taxonomy which are the outcomes of
collaboration between financial regulators, industry practitioners and sector experts, have been
issued during the past year. The former can provide context on the importance to incorporate
ESG considerations in FIs' financing and investment decision-making process, while the latter
can provide guidance for FIs to assess and classify economic activities that contribute to climate
change mitigation and adaptation. This will allow a deeper understanding of the impact of climate
risk to the FI, and enable leaders to better identify the organisation-wide strategies and resources
required to manage such risks.
Secondly, leaders must drive innovation to deliver value-driven and impactful solutions. This is
very much in-line with VBI which advocates for positive and sustainable impact through the
practices, offerings and conduct of institutions. Alongside regulatory efforts to rebuild economic
and social resilience, FIs can play a leading role in making meaningful or impactful contributions
to economic and social development through strategies that prioritise the triple bottom line.
Value-driven and impactful solutions are more evidently required throughout this pandemic. The
devastating economic impact of COVID-19 is apparent in certain sectors more than others, and
especially for vulnerable communities. Workers in the informal sector and low-income segment,
1
as well as those in the most affected industries such as airlines, have experienced a sudden
loss of employment and income. As many as 150 million people are expected to be pushed back
2
into extreme poverty by end 2021. Inherent in the Shariah are the principles of ihsan and adil,
hence, solutions should be tailored to commensurate with the current situation and challenges
faced by customers, for example, the expansion of targeted repayment assistance to the broader
society and businesses from the prolonged Movement Control Order, or incorporation of the
financial standing of customers in pricing recalibration for the restructuring and rescheduling of
facilities, as well as schemes such as iTEKAD and Skim CAKNA. To further encourage
innovation, the impetus for leaders and members of the institution can be put in place such as
performance monitoring mechanisms and compensation frameworks that are tied to the
Sustainable Development Goals (SDGs) or VBI initiatives.
Thirdly, a collaborative mindset is a must for leaders to deliver holistic outcomes. To collectively
advance the nation's transition towards sustainable development, concerted efforts by many,
across sectors are necessary to provide an enabling environment and address gaps that would
otherwise hold back progress. Among these include data gaps, and market awareness or
incentives to encourage change within consumers. Within the financial sector, coordination of
data among FIs could contribute to customisation of value-driven solutions for consumers,
particularly the underserved. There is an abundance of data within the financial industry but a
dearth in coordination. Industry platforms such as VBI-COP and the JC3 could potentially play a
central role to 'intermediate' the data. As a first step, conversations between the Islamic banking
and takaful operators to identify impact-driven and innovative financial solutions under VBI and
VBIT, can take place to facilitate respective outreach to the underserved or unbanked population.
Outside the financial sector, FIs can embark on collaborations with organisations sharing similar
sustainability aspirations including state religious authorities, waqf institutions, business industry
associations and advocacy groups, or non-governmental organisations who are at the heart of
the vulnerable communities. For example, FIs can collaborate with government agencies and
utility companies to support the consumers' shift to energy-efficient residential homes or
vehicles. Beyond the existing sustainable financial products offering preferential rates for the
purchase of electric vehicles (EV) or green residential properties, more can be done to raise
consumer awareness and to develop complementary infrastructure namely, charging stations.
Initiatives such as the development of the VBIAF sectoral guides which are now underway for the
manufacturing, construction and infrastructure, as well as oil and gas sectors, is a step in the
right direction to streamline the cross-sectoral understanding of sustainability issues, thus
allowing for better coordination of efforts to address sustainability risks throughout the value
chain.
In conclusion, it is our fervent hope that with sustainability, an innovative and collaborative
mindset, we can come to develop value-driven solutions and discover new avenues for
synergistic collaboration. I believe that the line-up of expert contributors for this Programme will
be able to provide delegates with insightful perspectives on best practices to lead the transition to
sustainability. The network built today among delegates can continue and be built upon for future
collaborative initiatives, either through a local platform by IBFIM or internationally, through CISL.
To end my remarks, I would like to share this quote by Winston Churchill, "I never worry about
action, but only inaction." With that, I wish all of you a productive programme.
Thank you.
1
Industries Most and Least Impacted by COVID-19 from a Probability of Default Perspective - September 2020
Update
2
COVID-19 to Add as Many as 150 Million Extreme Poor by 2021