Bank Negara: Prepare for climate change impact

Recognising its risks and impacts, Bank Negara has issued a discussion paper on climate change and principal-based taxonomy which aims to provide an overview of the matter

KUALA LUMPUR: Climate change is fast becoming a material source of structural change that has or may have a significant impact on the financial system and the wider economy.

Recognising its risks and impacts, Bank Negara has issued a discussion paper on climate change and principal-based taxonomy which aims to provide an overview of the matter.

The discussion paper would serve as guidance to facilitate financial institutions in identifying and classifying economic activities that could contribute to climate change.

The objectives of this document are for financial institutions to among others, increase awareness and actively respond to climate change and identify economic activities that contribute to climate change objectives. “It also aims to prepare and build capabilities in managing the financial risks from climate change, ” said Bank Negara in the discussion paper released last week.

Climate change and its impacts according to the central bank can manifest in three dimensions of risk namely physical risk, transition risk and liability risk.Physical risk arises from climate-related events that damage property, reduce productivity and disrupt trade.

Transition risk, on the other hand, arises from transitioning to a lower-carbon economy which may entail extensive policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate change. And liability risk entails legal risks and claims on damages and losses incurred from the effects of physical and transition risks. — Bernama