Nor Shamsiah Mohd Yunus: Remarks - Green Swan 2021 Global
Virtual Conference
Remarks by Ms Nor Shamsiah Mohd Yunus, Governor of the Central Bank of Malaysia (Bank
Negara Malaysia), at the Green Swan 2021 Global Virtual Conference, 4 June 2021.
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I am pleased to be in this panel. If there is anything history, or more recently the pandemic has
taught us, it is that, in the face of existential threats, a collective and well-coordinated response is
crucial.
Central banks and regulators are uniquely placed to mobilise and coordinate climate action with
other actors. Given the central role of the financial system in any economy, central banks and
regulators have significant influence and a direct interest in actions by financial institutions to
manage climate-related risks. The policy and supervisory steer that central banks and financial
regulators provide have important consequences for progress by economic agents in
strengthening climate risk mitigation and adaptation. Furthermore, as advisors to the
Government on economic and financial policies, central banks and regulators often play a key
role in helping Governments navigate an orderly transition to a low-carbon economy.
I'd like to focus my remarks today on how we are working with the industry and other financial
regulators to respond to the climate challenge.
JC3 and its evolution
In Malaysia, Bank Negara Malaysia and the Securities Commission have established the Joint
Committee on Climate Change (or JC3) with the financial industry to promote alignment on
climate actions across multiple stakeholders. Through the JC3, financial regulators are working
together with the stock exchange, financial institutions, institutional investors, NGOs and the
Government.
We started the JC3 with a narrow focus - acting as a network for sharing of experiences and
coordinating actions. But within two years of its establishment, the JC3 has evolved to become a
focal point for collective climate actions within the financial sector. Correspondingly, it has
expanded beyond networking and coordination, to providing content, stewardship and advocacy.
With financial regulators working alongside each other, the outreach of actions extends
throughout the key components within the financial sector.
The increasing breadth and depth of the work undertaken by its four sub-committees have
supported a number of key initiatives to advance climate risk management and climate-related
disclosures. This includes the issuance of the Climate Change and Principle-based Taxonomy
that was piloted by selected JC3 members and phased adoption of the Taskforce on
ClimateRelated Financial Disclosures (TCFD). The JC3 is also taking on an increasingly important role
in developing practical tools and solutions for financial institutions and to address barriers to
green financing and investments.
For example, the Bank is working with the industry via the JC3 platform to develop Guidance
Documents on Climate Risk Management and Scenario Analysis. The guides underscore the
need to manage climate-related risks as a financial risk within the broader enterprise risk
management frameworks, while addressing the unique characteristics of climate risk such as its
long-term horizon and non-linear features.
Since 2017, Islamic financial institutions have also taken a leadership role in spearheading
sustainable finance through the development of sectoral and activity impact-based risk
management frameworks. Sectoral Guides focusing on palm oil, renewable energy and energy
efficiency activities have already been issued, and will be followed by Guides for the
manufacturing, construction and infrastructure, as well as oil and gas sectors by the end of this
year. Through JC3, these complementary developments are being coordinated and integrated to
build a credible foundation for the financial industry to support the transition efforts.
Beyond the financial sector, the JC3 also actively engages with various stakeholders on climate
and transition initiatives. The formation of a new sub-committee this year, to address data gaps
for climate risk analysis is another major collaboration as part of JC3's efforts to strengthen
climate risk management and scale up green finance. The JC3 is also pursuing broader
engagements with key businesses to better understand transitioning issues and opportunities
along the supply value chain. This will help inform the structuring of customised financial
solutions for the different types of players within the entire value chain.
Objectives and motivations for collaboration
As a financial regulator and supervisor, it is important to be clear on the objectives and
motivations for our collaborative efforts with the industry and other stakeholders. The primary
goal for us is to support the appropriate consideration of climate risks in promoting resilient
financial institutions.
With this goal in sight, first we need to recognise that climate risk is a cross-cutting risk, for
which risk management approaches and methodologies are largely still under-developed. Given
this, there is much more to be discovered in terms of how it can be managed in an integrated
manner with other financial risks. This suggests a need for an iterative process that will enable
financial regulators and the industry to converge on supervisory expectations and a common
framework for assessing physical and transition risks.
As part of this process, we are examining the scope and specific approaches to incorporate
climate-related financial risks within the Pillar 2 requirements.
Secondly, the nature of climate-related risks calls for central banks and regulators to collaborate
at the national level to support alignment of financial industry responses with national climate
strategies and priorities.
As I mentioned at the start of my remarks, central banks and financial regulators provide an
important bridge between the financial sector and the Government to inform national policies,
targets and strategies on the one hand, and financial sector responses to climate risk on the
other hand. In Malaysia, JC3 serves as a focal point for engagements with the Malaysian Climate
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Change Action Council (MyCAC) on national climate policies.
Third, effective coordination with the industry serves to maximise transition benefits and
minimise downside risks. For developing and emerging economies in particular, an inclusive
strategy is key to avoid macroeconomic and social dislocations as we transition to a low-carbon
economy.
As financial and economic advisors to the Government, we are working with the Government to
develop sustainable finance roadmaps that will mitigate risks of stranded assets if disorderly
transition occurs.
The Bank's principles-based taxonomy was developed with this in mind. The taxonomy aims to
facilitate the direction of financial flows to activities that support the transition to a low-carbon and
climate resilient economy. It supports businesses in transition by recognising climate risk
mitigation and adaptation efforts over time, while preserving the rigour of assessments by
avoiding greenwashing.
The taxonomy also encourages financial institutions to nurture and nudge businesses to
transition to greener practices. It helps improve development outcomes, and builds capacity
within businesses themselves to better manage climate-related risks. To further support
transition activities, the Bank has also established funds to assist SMEs in pivoting their
businesses to be more sustainable in the post-pandemic world. This includes transitioning to
greener activities. The Bank is looking to further expand these facilities with a greater focus on
green activities that are aligned with the taxonomy going forward.
The Bank also sees great value in pursuing a coordinated and regionally coherent financial
sector response to the climate challenge. Within ASEAN, the Bank is working closely with central
banks in the region through the ASEAN Taxonomy Board in the construction of a regional
taxonomy that can provide a common language for sustainable finance in ASEAN and promote
efficiency. This will encourage the alignment of national taxonomies, building on common
principles and a tiering system to cater to differences in financial systems, economic and social
structures, and transition paths.
Global coordination to improve climate equity
Let me close with a final point on global coordination. As countries embark on different national
transition paths at varying paces, a global challenge is the disproportionate impact on emerging
economies. This makes it more difficult for them to control their own transition path due to
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economic and financial linkages . This reality calls for a more coherent global coordination to
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galvanise collective actions, with stronger link to the NDCs under the Paris Agreement, that
would help improve climate equity and mitigate risks of disorderly transitions. This would compel
countries that generate transition spillovers to provide financing, technology and capacity building
support to assist smaller and developing countries to adapt to climate change and take mitigating
actions. This, in our view, is a step towards a more equitable and effective global mechanism to
respond climate risk at a faster pace.
Thank you.
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A platform to set the direction, to discuss climate change policies and actions, to drive green economic growth,
to catalyse green technology and low-carbon growth at all levels, particularly in the federal and state
Governments.
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For example, measures to cut global GHG emissions (e.g. removing fossil fuel subsidies, emission caps and
carbon taxes) could lead to higher risk of stranded assets in emerging and developing countries given their
heavy reliance on fossil fuels.
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Nationally Determined Contributions.