by Luanne Sieh
Until fairly recently, climate change was thought to be the realm of academics and scientists, or even a political hoax. However, in recent weeks, we have witnessed the impact of climate change in real-time, and this trend is only accelerating. Due to record heatwaves, colonies of shellfish ended up cooked along beaches in Canada, and haze from forest fires blanketed the United States. Floods not seen in a thousand years ripped through parts of Europe and China, causing untold damage to livelihoods and communities. As these extreme weather events occur with increasing frequency, our world as we know it is reaching a tipping point.
The responsibility of limiting the rise in global temperatures to preferably below 1.5 degree Celsius and well below 2 degrees Celsius in line with the Paris Agreement does not lie with governments alone, but with everyone, including businesses, financial institutions (FIs), civil society and individuals. As part of the equation, FIs play a significant influencing and enabling role in the channelling of capital – be it to further accelerate consumption and activities with significant environmental consequences, or to facilitate a transition to a low carbon economy. As the urgency for climate action escalates, will sustainable and responsible finance become mainstream in Malaysia? Or will most FIs remain on the sidelines?
In June 2021, the Joint Committee on Climate Change (JC3) by Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC) hosted its virtual Flagship Conference themed ‘Finance for Change’, with CIMB as one of the co-organisers. Established in 2019 by BNM and the SC in partnership with the financial services industry, JC3 serves as a key focal point for collective climate action in the financial sector and across multiple stakeholders. The inaugural three-day Conference assembled more than 6,000 attendees to bring attention to the growing risk and impact of climate change on the industry and economy, and inspire action in developing innovative solutions towards achieving a more sustainable future.
A key takeaway was that FIs need to integrate sustainability into their core business strategies, proactively strengthening risk management practices to enhance climate resilience, and the need for more innovative approaches to drive sustainable finance. The recent publication of BNM’s Principle-based Taxonomy on Climate Change is a key step to guide local FIs to understand how their activities contribute towards climate change. The taxonomy requires banks to classify their portfolios according to impact on climate, and encourages a shift towards economic activities that are climate supporting or transitioning. In line with this approach, FIs are increasingly setting commitments to exit carbon-intensive sectors such as coal, while engaging with existing customers on their transition plans.
Trillions of dollars in climate finance will be required to fund the innovation and investment to mitigate and reduce emissions, as well as to ensure that infrastructure is resilient against the adverse impacts of a changing climate. The demand for sustainable financing instruments such as bonds, sukuk and loans that are linked to verifiable sustainability objectives and targets is growing. These investments will result in the growth of low carbon sectors such as renewable energy, green buildings, climate-smart agriculture and cities, and the new employment opportunities that would come with them.
FIs can also support retail customers by offering products and services that allow them to do their part in driving positive change. Innovative and accessible products such as savings accounts that channel a percentage of profits to support environmental projects, preferential pricing for green homes and vehicles, as well as environmental, social and governance (ESG) investment offerings allow customers to easily contribute and play an active role to drive the much-needed change.
The current pandemic has demonstrated the delicate balance and scale of interconnectivity and interdependence between societies, economies, public health and nature. COVID-19 has also shown us how incredibly resilient and adaptive humans can be, if they see an urgent and dire need. However, when it comes to climate change, there are no immediate movement restriction measures or vaccines that can be quickly rolled out. As with COVID-19, it is humanity – our children and future generations – who will suffer the impacts of climate change. We are at a point in history where we are getting closer and closer to the point of no return, but the longer we delay our transition to a low carbon economy and put off making real changes to our lifestyles, the closer to the edge we are getting. Sustainability is the future currency, and charting the path towards more sustainable financing, development and lifestyles should and must be the only course of action.
