appetite for sovereign bonds, preferably bonds issued by their own government. banks ’ appetite for government bonds would indeed be curbed if they had to back sovereign issues on the books with capital in future like they have to do with private loans. unlike in the case of corporate bonds, euro - area financial institutions are not required to hold capital against government bonds in order to cover potential defaults. and there are also no upper limits on how many government bonds the banks are allowed to buy. the regulations still treat sovereign bonds as risk - free, even though the euro - area debt crisis clearly revealed that this assumption is not accurate. 7 / 9 bis central bankers'speeches banks will be able to cope with the restructuring of sovereign debt only when banks hold sufficient capital against government bonds and a limit is placed on the size of individual exposures. and only then is there also likely to exist the political will to take such action. 4. sovereign bond - backed securities one advantage of abolishing the preferential treatment of government bonds would be giving banks incentives to further diversify their sovereign bond portfolio and, thus, their credit risk. that would represent a major contribution to severing the sovereign - bank nexus that served to fan the flames of the crisis. many fear that abolishing the preferential treatment of sovereign bonds might result in a lack of safe assets. for that reason, markus brunnermeier and his colleagues have proposed the creation of what are known as “ sovereign bond - backed securities ”. 8 the aim of the proposal is to increase the range of aaa - rated bonds in the euro area. to this end, two tranches of a new type of securities are to be issued. both tranches are to be collateralised with sovereign bonds of all the euro - area countries. losses from the sovereign bonds would initially occur in the junior tranche. as a result, the senior tranche is intended to be especially safe. and that is why this tranche is designated in the proposal as “ european safe bonds ”, or esbies for short. in principle – and depending on how it is designed – this model could indeed help make it easier to diversity portfolios. it is highly uncertain, however, whether this would have the hoped - for impact on the available range of safe forms of investment. the rating agency standard and poors, for example, points out that the risk of defaults on sovereign bonds is highly correlated. 9 if a country is struggling to service its bonds

, malaysia also issued the world's first usd - denominated sovereign sustainability sukuk in 2021. meanwhile, bursa malaysia has launched " bursa carbon exchange ", the world's first shariah - compliant voluntary carbon exchange. through trading of high - quality carbon credits, this helps businesses meet climate targets in the near term, while more practical solutions are taken to decarbonise their operations. 2 / 4 bis - central bankers'speeches malaysia recognises the need for a cohesive and coordinated approach in responding to the climate challenge. that is why in 2019, we launched the joint committee on climate change or jc3 to serve as the main focal point for spearheading the financial sector's response to the climate agenda. the jc3 is jointly chaired by the bnm and sc. its members include the stock exchange, industry players and relevant experts. through collaborative partnerships, the jc3 is driving change across pivotal facets of the economy, providing tools, resources, and advocacy for climate action. this includes efforts to bridge climate data gaps, innovative pilots to scale up transition and adaptation finance, and capacity building to support smes in transition. more details on these and other initiatives pursued by the jc3 can be found at www. jc3malaysia. com. i am also heartened by the growing focus and concrete climate actions taken by financial institutions in malaysia. to date, the industry's financial commitment stands at over usd43 billion for esg purposes. indeed, by 2026, we expect to see at least half of new financing by our banks aligned with climate - supporting or transitioning activities. that said, malaysia cannot do this on its own. as stated in the netr, the government anticipates that malaysia will require investments of about usd280 billion by 2050 to meet our energy transition needs. the sessions at this pavilion today are not just about what the malaysian financial sector is doing to finance our own climate journey. it is also about the many opportunities open for financial institutions, investors, businesses and other entities from all over the world to join or partner with us on our journey – be it to contribute or mobilise capital and technology ; to share expertise ; or even to participate in the conversation to share your ideas. our aspiration is for the malaysian financial sector to play a key, vibrant role in mobilising capital to address the enormous climate financing needs of the world at large that is estimated at usd275