MALAYSIA is one of the countries that faces the brunt of climate change impact, as global temperature increases. Between 1970 and 2013, Malaysian surface temperatures had a mean increase of 1.78°C, whereas the Paris Agreement in 2015 stated that increases in surface temperatures should be kept well below 2°C from pre-industrial levels (1980s) to curb extreme climate events. Therefore, climate action is needed for Malaysia to limit the impacts of climate change and stay below 2°C.
These actions include adaptation and mitigation measures that are backed by climate financing. Climate finance is a widely-used term to describe the financing that goes into climate-related projects.
The systems around setting up adaptation and mitigation measures in Malaysia can be improved and the conversation surrounding the financing of the projects is at its infancy.
Although Malaysia has taken steps towards a more climate-resilient future, the country could be moving at a faster pace to combat the issue of human-induced climate change.
Understanding the importance and need of climate finance can help Malaysia to minimise not only the physical and financial risk that the country will face, but also the social impacts of climate change such as loss of livelihoods or displacement. For example, the floods in 2021 caused more than 40,000 people to be displaced and left RM6.1 billion in financial losses.
Climate finance can be drawn from public, private and other alternative sources of funding and this is where the financial role of businesses, governmental bodies, as well as individuals come in.
Malaysia has made environmental changes and developed a number of projects which aim to accelerate the country’s climate action. For example, in 2022, Malaysia launched the National Energy Policy, which aims to decarbonise the energy industry by 2040 through a number of different strategies, such as a 38% increase in electric vehicle deployments, 17% increase in renewable energy supply, and an almost 19% decrease in the use of coal.
Malaysia’s previous prime minister Datuk Seri Ismail Sabri Yaakob also announced a carbon-neutrality target by 2050 in 2021. Moreover, The Minister of Natural Resources, Environment and Climate Change, Nik Nazmi Nik Ahmad, launched Bursa’s voluntary carbon market exchange in 2022, to lower greenhouse gas emissions and provide climate financing, and is also currently developing Malaysia’s Climate Change Bill. Recently, the Malaysian government has lifted the ban on renewable energy exports to support the development of the renewable energy sector, and has also increased the nation’s renewable energy target. These are good and much-needed measures which have put Malaysia in the 56th position of the Climate Change Performance Index. However, there are still gaps that remain in the provision and mobilisation of capital towards climate-related projects.
The actual implementation and success of the National Energy Policy 2022-2024 is very much dependent on meeting investment needs and requirements. Therefore, urgent climate financing is needed to ensure proper deployment of climate-related projects. Malaysia has distributed climate financing in the past, through schemes such as the Green Technology Financing Scheme (GTFS), which was introduced by the Malaysian government in 2019 to support additional deployment of green technologies and to facilitate sustainable growth for businesses; this was executed through government-backed loan provision. Furthermore, in 2020, the Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guides on Palm Oil, Renewable Energy and Energy Efficiency were issued to ensure that financial institutions incorporate sustainable frameworks within investments.
The World Bank states that around US$1 trillion (about RM4.5 trillion) per year of climate finance is needed for an emerging market such as Malaysia. According to the International Monetary Fund (IMF), we currently see around US$630 billion (about RM2.9 trillion) in climate finance globally per year, and only a very small fraction of that goes to emerging markets such as Malaysia. Blended finance through financial institutions can play a crucial role in climate finance, by providing better access to capital and mobilising resources that are needed for investments in Malaysia’s adaptation and mitigation projects.
There are a number of climate initiatives that have been rolled out specifically by financial institutions in Malaysia. For example, RHB Banking Group is working to support SMEs (small and medium enterprises) which incorporate sustainable growth as part of their business by providing grants of up to RM1 billion by 2025 through their Sustainability Financing Programme (SFP). Bank Islam has also developed an initiative to provide RM2.62 billion to finance a just transition for companies that are engaging in renewable energy. Furthermore, there are also initiatives such as the Malaysian Sustainable Finance Initiative (MSFI), which was established by the Capital Markets Malaysia (CMM) to aid the Malaysian financial sector to better incorporate sustainable financing. However, due to the information gap between climate scientists, government officials and financiers, the demand for climate finance is still not being met. Therefore, there needs to be an understanding of how blended financing can fill in the gaps to provide climate finance in Malaysia, by bridging the information gap between businesses, society and the government.
To bring together different stakeholders involved in the conversation of climate finance, Chevening and the Perdana Fellows Alumni Association (PFAA) has organised Malaysia’s first Climate Finance Summit that will be held on the 13th July 2023 at Sasana Kijang, Bank Negara Malaysia, Kuala Lumpur. The aim of this summit is to unite businesses, regulators, financiers and members of the public and have a collaborative discussion of the current and future state of climate finance in Malaysia. The summit will host minister Nik Nazmi, who has been at the forefront of tackling climate change at his ministry. The summit will also have several panel sessions with the following topics: “The Future of Climate Finance”, “Scaling up Private Sector Climate Finance”, and “Lessons from the Net Zero Journey”. By highlighting these topics, the summit hopes to increase climate financing in Malaysia’s adaptation and mitigation measures.
Nadiah Nik Arif and Ashwini Ravi are responsible for Content and Speaker Management for the Climate Finance Summit (CFS) 2023. Muaz Mohd Hasnol is Director of CFS 2023.