BNM finalized the guidance on climate change and its impact on businesses and households as well as the broader economy. The guidance introduces a principle-based taxonomy for financial institutions to assess and categorize economic activities according to the extent to which the activities meet climate objectives and promote the transition to a low-carbon economy. The guidance is applicable to financial institutions that include licensed banks, investment banks, Islamic banks, international Islamic banks, and prescribed development financial institutions, with an effective date of April 30, 2021.
The guidance aims to facilitate standardized classification and reporting of climate-related exposures to support risk assessments at the institution and systemic levels, strengthen accountability and market transparency, and encourage financial flows toward supporting climate objectives. Financial institutions can leverage the taxonomy in the design and structuring of green finance solutions and services to accelerate development of green sectors and activities and decarbonization efforts. BNM had issued, in December 2019, a discussion paper on climate change and principle-based taxonomy. Following the feedback received during the consultation, the final guidance document features major enhancements in the following areas:
- Strengthened the guidance document with the introduction of a progressive system of transition categories to acknowledge concrete transition efforts and commitments by businesses to adopt sustainable practices
- Provided greater clarity and guidance for the assessment of guiding principles, including incorporation of broader environmental outcomes through the principle of no significant harm, with focus on how business operations affect pollution, biodiversity and resource efficiency
This guidance complements the guidance document on value-based intermediation financing and investment impact assessment framework, which BNM had issued in November 2019. The guidance document on value-based intermediation financing lays the foundation for environmental, social, and governance (ESG) considerations in the provision of financial services, to generate a positive and sustainable impact on the economy, community, and environment.
Effective Date: April 30, 2021
Keywords: Asia Pacific, Malaysia, Banking, Insurance, ESG, Climate Change Risk, Taxonomy, Sustainable Finance, Islamic Banks, Reporting, BNM
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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