A case in point is the reputational risk a financial institution that provides financing to companies involved in environmental destruction activities could face, which may eventually affect the institution’s financial sustainability. Malaysia’s experience and approach A question in mind is therefore whether Islamic finance has fully optimised on these value propositions. Allow me to share this in the context of the Malaysian Islamic financial industry. 1/3  BIS central bankers' speeches  After three decades of development, the Islamic finance industry has progressed to become an integral component of the Malaysian financial system5. Most notably, Islamic finance has played a catalytic role in financial inclusion – enabling access to formal financial services for the different segments of the society. In charting its strategic direction, in 2017, a few Islamic financial institutions began to explore value-based intermediation or VBI as a new operational model. The VBI encapsulates the vision to focus on being more impact-driven, reinforcing the overarching intent of Shariah to promote good and prevent harm. Islamic finance, moving forward, strives to be relevant to all as a financial intermediation that creates positive and sustainable values for broader stakeholders – consistent with the long-term value creation for shareholders and aligned with the national targets of sustainable development goals (SDGs). To date, 12 Islamic banking institutions have committed to integrate environmental and social considerations in their offerings, practices and cultures. In facilitating the industry in this journey, Bank Negara Malaysia collaborates with the industry to create an enabling environment for smooth and orderly transition.

Our task now is to ensure that liberalization and globalization remain productive processes, that our energies are devoted not just to short-term cures, but also to long-term preventive health. There are a number of initiatives that we might pursue, and I mention only a few of them with the aim of stimulating discussion. The first, and most urgent, is the reform of the international financial architecture to better regulate the volatile capital flows that contribute to market instability. This must include improved information and disclosure. The recent experience in this region has shown that problems were allowed to build up because of a lack of information about the full financial picture, both in terms of the destination and the source of the funds. Important steps are being taken in many Asian countries towards greater transparency in the public sector, and I am pleased to report that Hong Kong is playing a leading role in these efforts. But greater transparency among the regulators means that a serious asymmetry of information is emerging between the public and private sectors. We must now consider the need for greater disclosure on the investor side, since the virtual complete lack of information about the activities of huge global institutional investors poses risks to all participants in the markets - to other investors, to lenders, and to borrowers. A second part of this architectural reform must be improved prudential oversight of capital flows, since mere disclosure is no guarantee that behaviour will be prudent.