BNM Publishes Guidance on Climate Change and Principle-Based Taxonomy
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.
Related Links
Effective Date: April 30, 2021
Keywords: Asia Pacific, Malaysia, Banking, Insurance, ESG, Climate Change Risk, Taxonomy, Sustainable Finance, Islamic Banks, Reporting, BNM
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Michael Denton, PhD, PE
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.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.