The central bank stressed that it is an entire ecosystem that must work hand in hand to develop a green economy, including itself.
KUALA LUMPUR: Financial institutions must hold their clients accountable for green transitioning, according to Bank Negara.
The central bank said the onus is on the financial institutions in preventing any misuse of green loans that have been provided.
To ensure this, proper onboarding process needs to be done when clients apply for loans, followed by a comprehensive monitoring process.
“The key thing here is the kind of communication that takes place between banks and their clients.
“When clients commit to using those loans for green activities, financial institutions need to be able to stand by and ensure clients are doing what they said they’ll do,” Bank Negara said during a sustainability media workshop it organised yesterday.
According to the central bank, this can be done by beefing up the banks’ internal compliance and checks, as well as auditing processes for loans.
It added that while the disclosure part in Malaysia is still relatively new, it is also an evolving space, which means financial institutions need to be able to actively engage and scrutinise more carefully who they are lending to.
“In Europe, greenwashing incidents are becoming more prevalent these days. But in our sampling locally, we have not come across any business so far doing this, this is a good sign.
“But this is a challenge that most will need to grapple with in time,” it said.
The central bank stressed that it is an entire ecosystem that must work hand in hand to develop a green economy, including itself.
“The Climate Change and Principle-Based Taxonomy (CPPT) is one of the tools Bank Negara developed as a framework for banks across the board to use as a guideline.
“Through this framework, banks will know how to label and see financial risks while creating a consistent method of evaluating loan applications that come in,” it said.
The CPPT will also help to reduce greenwashing because it allows for classification for sustainable investment, which will help with identifying good prospects.
“The CPPT also recognises transition efforts by companies and will be able to reward them as well as recommend steps that should be taken to further improve.
“It is clearly important for financial institutions to have the right kind of foundation themselves, in order to be able to guide and advise businesses coming to them for loans,” Bank Negara said.
However, Bank Negara said it is not all gloom and doom when it comes to climate change.
Among the positive upside include the push for innovation, the creation of more jobs and opportunities for sustainable investments.
“With the right infrastructure and financing being the enabler, Malaysia can leapfrog from the traditional carbon intensive models to embracing the green economy and clean sustainable practices,” it said.
Some of the positive outcomes should Malaysia diligently continue in its green efforts include a 1.5% of additional gross domestic product (GDP) growth by 2030, 1.5 million new green collar jobs and an improved livelihood for many.
Bank Negara said on the flip side, ineffective action will lead to much higher economic and financial losses through the decrease of exports and a potentially displaced workforce.
“Almost 57% of Malaysia’s exports to the European Union can be affected by the Carbon Borden Adjustment Mechanism while 20% of GDP is at risk of facing losses and lower investment as environmental, social and governance compliance increases,” the central bank noted.
