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
Previous ArticleBCB Amends Rules on Open Banking and Proposes ESG Disclosure Rules
In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.
The European Banking Authority (EBA) published answers to 29 questions in the Single Rulebook Question and Answer (Q&A) tool in September.
The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.
The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.
The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.
The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.
The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.
The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards