An update on APAC Taxonomy -- Malaysia's Climate Change and Principle-based Taxonomy

According to Arabesque, Across the world’s 50 largest economies, the PRI finds that there have been over 730 hard and soft law policy revisions, across some 500 policy instruments, which support, encourage or require investors to consider long-term value drivers, including ESG factors. Of these top 50 economies, 48 have some form of policy designed to help investors consider sustainability risks, opportunities or outcomes.

Bank Negara Malaysia suggests in Malaysia's Climate Change and Principle-based Taxonomy that climate-related risk is a risk driver that has an impact on most of the commonly known risk types such as credit risk, market risk, liquidity risk, insurance risk, operational risk and strategic risk.

In order to strengthen the financial industry’s capacity in managing climate-related risks and scaling up green finance, the BNM (Bank Negara Malaysia) and the SC (Securities Commission) have issued a joint statement outlining the financial sector’s key priorities for building climate resilience in September last year. This marked a year after the Joint Committee on Climate Change (JC3)’s establishment to pursue collaborative actions for building climate resilience within the Malaysia financial sector.

In 2020, the JC3 sub-committees completed a number of key initiatives, including the broad-based consultation and pilot implementation of the Climate Change and Principles-Based Taxonomy (CCPT) developed for the financial institutions, a stock-take on disclosure practices of selected financial institutions in Malaysia against recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and a gap analysis on the green finance landscape. Financial institutions licensed by BNM will begin capturing exposures based on the CCPT for internal risk management and supervisory purposes over the course of 2021.

GC Insights helps turn investors' beliefs and priorities around ESG issues integrated into investment processes and practices, and provide assurance to stakeholders with ESG considerations. We track closely to ensure more businesses and investors are aware of their exposures to the changing climate and seek opportunities among transitions. You can always read more on the APAC Taxonomy regulations including Hongkong, Singapore, South Korea and the EU Taxonomy.

What’s next for investors?

For 2021, JC3’s priorities include:

  • Developing guidance documents on risk management and scenario analysis. This will complement the CCPT and advance climate risk management and stress testing practices in the financial sector;

  • Supporting the voluntary implementation of climate-related disclosures that are aligned with TCFD recommendations. This includes working with the industry to contextualise the recommendations to the Malaysian economy and financial system, and develop practical resources to help firms that interact with financial institutions improve their disclosures;

  • Broadening engagements with relevant stakeholders, including Government agencies, institutional investors and market intermediaries to identify and address enabling conditions for the structuring of green financial products and solutions; and

  • Deepening technical capacity building programmes, focusing in particular on strengthening the practical knowledge and tools to support climate-related disclosures, climate risk management and climate scenario analysis.

Another follow-up flagship event to the 2019 Regional Conference on Climate Change will be held by JC3 in the second half of the year. As announced, the JC3 has further agreed to establish a dedicated data workstream to identify crucial climate and environmental-related data and the relevant data sources, as well as solutions to bridge the data gaps. The work of the data workstream will also contribute towards a more consistent implementation of the CCPT. As announced by the BNM, JC3 members are also stepping up efforts to implement TCFD disclosures in phases beginning this year. Members also agreed to identify specific business initiatives that support sustainable activities and pursue the adoption of internal financial targets for sustainability-related loans and financing, and assets under management.

(written by Yitong Yuan)

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