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 Change Action Council (MyCAC)1 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.

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.