jessica chew cheng lian : keynote address - intitute of international finance - maybank transition finance workshop keynote address by ms jessica chew cheng lian, deputy governor of the central bank of malaysia ( bank negara malaysia ), at the institute of international financemaybank transition finance workshop, kuala lumpur, 30 november 2023. * * * it is my great pleasure to be here with you this morning. my thanks to maybank and the iif1 for the opportunity to say a few words at this workshop. this event comes close on the heels of the recent jc3 journey to zero conference and presents a timely opportunity to continue the conversation on the financial sector's response to the climate challenge. notwithstanding the varying levels of ambition observed across countries, industries and companies, and possible decarbonisation pathways, achieving a just and orderly transition towards net zero continues to be a common goal. that means enabling a whole - of - economy transition to low - carbon activities. we know that green finance alone will not deliver this ; and therefore transition finance is equally, if not more, important. for malaysia, the stakes are high. it is estimated that 20 % of malaysia's gdp and 23 % of the workforce are associated with hard - to - abate sectors of our economy2. 60 % of smes claim that they are looking to increase business opportunities and create longterm value by strengthening esg practices3, and will need help to do so. malaysia faces sizable gdp losses from flood damages materialising within the present decade without adaptation measures and investments to build supply chain resiliency. this is backed by findings from a recently completed joint research project undertaken by bank negara malaysia and the world bank which will be published soon. of late, we have been minded, however, of the need to be clear on what transition finance is and what it is not. let me elaborate. first what transition finance is. oecd defines transition finance as finance " intended to decarbonise entities or economic activities that are emissions intensive, may not currently have a low - or zero - emission substitute that is economically available or credible, but are important for future socio - economic development " 4. this has underpinned the development in malaysia of the climate change and principle - based taxonomy ( or ccpt ) and also, more recently, the asean taxonomy for sustainable finance – both of which were among the first transition taxonomies to come out globally. the ccpt's five -

the most desirable of these probability distributions. to quote greenspan one more time : given our inevitably incomplete knowledge.... a central bank needs to consider not only the most likely future path for the economy but also the distribution of possible outcomes about that path. the decisionmakers then need to reach a judgment about the probabilities, costs, and benefits of the various possible outcomes under alternative choices for policy. moreover, under the risk - management approach, models, judgments, forecasts, and policies are continually updated in light of new information, as theory would suggest. operationally, the risk - management approach differs from the forecast - based policies described in much of the monetary economics literature in only one important respect. for simplicity, researchers have generally analyzed forecast - based policies under the assumption that policymakers care only about average economic outcomes. however, in practice, policymakers are often concerned not only with the average or most likely outcomes but also with the risks to their objectives posed by relatively low - probability events. for example, although the probability last year of a pernicious deflation in the united states was small, the potential consequences of that event were sufficiently worrisome that the possibility of its occurring could not be ignored. in that spirit, greenspan ’ s risk - management approach sensibly reflects the fact that the entire distribution of possible outcomes, not just the average or most likely expected outcome, matters for policy choice. this view is certainly realistic, and the analysis of forecast - based policies when the central bank cares about the whole probability distribution of potential outcomes is beginning to receive more attention in the literature ( see, for example, svensson, 2004a ). to reiterate, however, the policy framework espoused by chairman greenspan is very much a forecast - based approach ; indeed, because it requires making judgments about unlikely as well as likely economic outcomes, it places greater demands on our ability to forecast and to assess risks than do simpler forecast - based approaches that focus on average outcomes only. as i mentioned earlier, i will not try to draw definite conclusions today about the relative merits of simple feedback policies and forecast - based policies. i note, however, that not only have most central banks chosen to rely most heavily on forecast - based policies but also that the results, at least in recent years, have generally been quite good, as most economies have enjoyed low inflation and overall economic stability. 11 so long as this good performance persists, at least, the simple