KUALA LUMPUR (Oct 23): Bank Negara Malaysia (BNM) expects at least half of new financing by banks to be aligned with climate supporting or transitioning activities by 2026, according to the central bank’s governor Datuk Abdul Rasheed Ghaffour.

During his speech at the Joint Committee on Climate Change (JC3) Conference “Journey to Zero” on Monday, he reaffirmed BNM’s commitment to provide a facilitative policy environment for the banking industry to advance financial innovations and explore novel financial structures needed to meet the significant financing needs for climate risk mitigation and adaptation.

Achieving this goal would require a more prominent role for public-private partnerships and an innovative blend of finance structures, he said.

“The [central] bank has begun undertaking a comprehensive review of our regulations to ensure climate risk is appropriately accounted for and well-integrated into our regulatory framework. This is to ensure that the industry remains climate resilient, while being able to effectively support the economy’s transition.

“We recognise the challenges that financial institutions may face in balancing these outcomes. Concentration risks could for example, increase from green and transition funding, and financial institutions need to properly understand and manage such risks. For the [central] bank, any adjustments to prudential standards would need to carefully consider necessary safeguards to ensure the attendant risks continue to be adequately managed.

As financial institutions take more concrete steps in climate action, managing the trade-offs inherent in crafting credible transition plans and allocating capital that aligns with a net-zero trajectory will be all-important, said Abdul Rasheed.

“In support of this, the [central] bank is working to develop guidance on transition plans to promote alignment between financial institutions’ business and risk strategies, their public commitments on climate goals and national plans, while safeguarding against the risk of greenwashing,” the governor added.

On top of that, he said, financial institutions must also consider the specific needs of their clients in their transition plans by addressing the financing and capacity needs of businesses in hard-to-abate sectors, including small and medium sized enterprises (SMEs) within the supply chain.

“With this, we can achieve an inclusive transition that prevents substantial economic disruptions and safeguards the livelihoods of workers. The availability of high-quality, reliable and comparable climate related data remains high on our list of priorities.

“We [also] remain committed to tackle frictions surrounding climate data reporting. In areas where there are still data gaps, we will work closely with relevant ministries, agencies and committees at the national level, through the JC3, to improve the availability and accessibility of climate-related data,” Abdul Rasheed mentioned.