Abdul Rasheed Ghaffour: Welcoming remarks - JC3 Journey to Zero
Conference 2023
Welcoming remarks by Mr Abdul Rasheed Ghaffour, Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the JC3 Journey to Zero Conference 2023, Kuala
Lumpur, 23 October 2023.
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Let me extend a very warm welcome and selamat datang to all present this morning at
Sasana Kijang and for those joining us virtually at this conference. Though only two
years have passed since the last conference, the world has witnessed a series of
unprecedented climate events. We saw record-breaking global temperatures with July
marked as the hottest month ever. The United Nations has even declared the start of
the Era of Global Boiling - with a 98 percent chance that the world will experience a
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new temperature record at least once in the next five years .
Today's event is about the climate. But allow me to start by saying a few words about
the economy. The world we occupy is indeed challenging - decisions and events miles
away can affect our shores, leading to external shocks facing our economy today.
Despite this, the Malaysian economy is resilient and growth remains forthcoming.
Advance estimates show the economy growing by 3.3 percent in the third quarter,
compared to 2.9 percent last quarter. While we are currently experiencing weakness in
global demand and the tech downcycle, domestic demand is holding up well. More
recent indicators are already showing signs of recovery. Looking ahead, we expect the
global economy to improve. The initiatives to strengthen Malaysia's economic structure,
including transitioning towards a greener economy, will certainly provide additional
impetus to business activities and employment opportunities.
As a highly open economy, the exchange rate is a very important relative price affecting
many aspects of the economy. With growth gaining momentum, steady disinflation, a
current account surplus and a strong banking system, current ringgit movements
appear to be more heavily influenced by global events and certainly do not reflect our
economic fundamentals. I want to emphasise strongly that Malaysia's economy today is
resilient notably in terms of our economic fundamentals, robustness of our financial
sector, and depth of our financial markets. Let me also stress that the Bank remains
committed to deploy necessary measures to ensure that the ringgit adjusts in an orderly
manner and businesses continue to be facilitated. We have been in the markets, and
we will, when needed, continue to be in the market.
All of this underscores the importance of building buffers and the urgency to
continuously pursue reforms to increase the resilience of our economy, and to build a
better world. More than ever, climate change is hitting closer to home. And issues
affecting the climate and economy are increasingly connected. To illustrate, the heat
wave and dry spells that lasted for weeks have raised concerns about food production,
water scarcity and harm to people's health. Farmers in Perlis and Kedah, Malaysia's
own rice bowls, are among those hit the hardest. It is estimated that Malaysia's
economy could lose 5.9 percent of its GDP by 2030 due to heat-related productivity loss
2. At the other extreme, Malaysia also grapples with excessive rain and floods that
impact the people and their economic wellbeing. Within less than a decade, Malaysia
has witnessed nearly half a million climate-related displacements. By 2030, about 25
percent of Malaysia's population could be displaced due to the impacts of climate
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change .
Navigating the seas of climate change is complex and requires all hands on deck to
rally together. A whole-of-nation, as well as a whole-of-world approach is crucial to build
a greener, more sustainable and resilient world. With growing urgency to act, the
Government is taking concrete actions to provide policy clarity on the country's
transition path. This is laid out in the key policies announced recently, including the
National Energy Transition Roadmap and the New Industrial Master Plan. A climate
legislation, long term sectoral pathways (LT-LEDS), and Nationally Determined
Contributions (NDC) roadmap, and a national adaptation policy that are also underway
would further help us navigate these unchartered waters.
Within the Malaysian financial sector, the Joint Committee on Climate Change or JC3
has become a key focal point for collective climate actions. Through its growing network
of collaborative partnerships, its outreach of actions continue to extend across all
pivotal facets of the economy - providing tools and resources, stewardship and
advocacy for climate action.
These have supported implementation of the Climate Change and Principle-based
Taxonomy (or CCPT) by financial institutions; better disclosure by businesses in line
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with TCFD recommendations; and strengthening of climate risk management and
practices. The JC3, in collaboration with the Value-based Intermediation (or VBI)
Community of Practitioners also promote further integration and alignment of the CCPT
with the VBI Financing and Investment Impact Assessment Framework (or VBIAF)
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sectoral guides , with the third cohort of the guides to be issued by end of the year.
Recognising the need to bridge critical data gaps in climate and environmental
risksrelated information, a major deliverable by JC3 was the publication of the Climate Data
Catalogue. Since its issuance a year ago, the JC3 has further expanded the Data
Catalogue which now includes close to 400 credible data sources. This enhanced Data
Catalogue, alongside other tools and resources are now accessible on the new JC3
website being launched today.
SMEs form another important component in the climate equation and are a key focus of
JC3 agenda. It is encouraging that 60 percent of SMEs see that strengthening ESG
practices can increase business opportunities and create long-term value. However,
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only 28 percent of SMEs have adopted elements of ESG practices in their business .
To support SMEs' transition, an SME Focus Group was recently formed under JC3 to
bring together multiple initiatives focusing on SMEs to improve coordination and
engagement with partners and industry bodies. The Focus Group will actively pursue
measures to build technical capability, improve access to financing via mechanisms
such as guarantees, and reduce the costs of transition in coordination with key
stakeholders within the ecosystem.
As part of efforts to scale up transition finance, the JC3 has rolled out the Greening
Value Chain or GVC pilot programme. The programme has effected change for more
than eighty participating SMEs within the supply chain of four corporates. These SMEs
have begun to measure their GHG and identify emission-intensive areas within their
operations. Several SMEs have also started to provide emission reports to their
corporate customers. With a workable model developed through this pilot initiative, this
is expected to pave the way for financial institutions to work with more corporates and
their supply chains to accelerate transition. This afternoon, we will also hear more pilot
projects to spur the adoption of sustainable and low carbon practices in the agriculture
sector and industrial parks in Malaysia.
The JC3 also remains committed to enhancing the climate expertise of financial
professionals. The JC3 has been working closely with training institutes to provide
curated and specialised climate-related training for the industry.
I am encouraged by the increasing focus and concrete climate actions taken by
financial institutions. There are more 'net zero' commitments, wider options for green
and greening products and solutions, as well as an increasing amount of financing
committed by industry players.
Today, the 'Wall of Commitment' showcases the industry's financial commitment of
more than RM200 billion for Environment, Social and Governance (ESG) purposes.
While the amount is commendable, more is needed to fund the transition, not only from
banks, but also capital market players. It is equally crucial for financial institutions to
follow through on the integrity of these pledges by aligning commitments with actions
and investments that are consistent with a just and orderly transition.
The Bank remains focused on ensuring that the financial sector's response to the
climate challenge is compatible with both financial stability and inclusion outcomes - to
forge a credible path forward for the country. We are mindful that this requires
maintaining a delicate balance between development and risk management.
By 2026, we expect to see at least half of new financing by banks to be aligned with
climate supporting or transitioning activities, as set in the Financial Sector Blueprint.
The Bank will continue to provide a facilitative policy environment for the industry to
advance financial innovations and explore novel financial structures needed to meet the
significant financing needs for climate risk mitigation and adaptation. This will need to
include a more prominent role for public-private partnerships and innovative blended
finance structures.
The Bank has begun undertaking a comprehensive review of our regulations to ensure
climate risk is appropriately accounted for and well-integrated into our regulatory
framework. This is to ensure that the industry remains climate resilient, while being able
to effectively support the economy's transition. We recognise the challenges that
financial institutions may face in balancing these outcomes. Concentration risks could
for example, increase from green and transition funding, and financial institutions need
to properly understand and manage such risks. For the Bank, any adjustments to
prudential standards would need to carefully consider necessary safeguards to ensure
the attendant risks continue to be adequately managed.
As financial institutions take more concrete steps in climate action, managing the
tradeoffs inherent in crafting credible transition plans and allocating capital that aligns with a
net-zero trajectory will be all-important. In support of this, the Bank is working to
develop guidance on transition plans to promote alignment between financial
institutions' business and risk strategies, their public commitments on climate goals and
national plans, while safeguarding against the risk of greenwashing. Financial
institutions must also consider the specific needs of their clients in their transition plans.
This should address the financing and capacity need of businesses in hard-to-abate
sectors, including SMEs within the supply chain. With this, we can achieve an inclusive
transition that prevents substantial economic disruptions and safeguards the livelihoods
of workers.
The availability of high-quality, reliable and comparable climate-related data remains
high in our list of priorities. We remain committed to tackle frictions surrounding climate
data reporting. In areas where there are still data gaps, we will work closely with
relevant ministries, agencies and committees at the national level, through the JC3, to
improve the availability and accessibility of climate-related data.
In addressing climate risk, we cannot neglect the increasing threat on nature and
ecosystem services, and the interconnectedness of climate-and nature-related risks. A
study by the Bank and World Bank indicated high dependency and exposure of
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Malaysian banks' lending portfolio to ecosystem services . This underscores the
dependencies between nature and the economy. The Bank will work closely with
industry players to approach nature and biodiversity loss pragmatically, by building and
expanding on existing climate and the VBI work.
I believe the case for climate is no longer in question. The financial industry has made
good strides to rise to the challenge. But much, much more is needed - both to close
pre-existing gaps, and to move us meaningfully forward. We know the perils of
complacency and the rewards of climate action. The clock now ticks urgently for our
response.
Sir David Attenborough, who graciously participated in our last conference, once said, "
If working apart we are a force powerful enough to destabilise our planet, surely
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working together, we are powerful enough to save it . "
Thank you.
1
The World Meteorological Organisation
2
Ecological Economics, Volume 159, May 2019, Estimating Economic Losses from
Perceived Heat Stress in Urban Malaysia, Pages 84-90
3
UNICEF Malaysia
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Task Force on Climate-related Financial Disclosures
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The guides provide sector-specific toolkits for financial institutions to incorporate ESG
risk considerations in their financing and investment decisions
"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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A report on "An Exploration of Nature-related Financial Risks in Malaysia", published
by the World Bank and Bank Negara Malaysia in March 2022
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Quote from speech at COP26