Will banks have to disclose climate risk exposure soon?

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Banks Will Soon Be Required to Disclose Climate Risk Exposure

Financial institutions in Malaysia will soon be mandated to report their exposure to climate risks, a move that will inform regulatory standards and prudential measures. This initiative, driven by concerns over the economic implications of climate change, is expected to be implemented once classifications for green assets are finalised. The central bank aims to gather crucial data to better understand and manage the financial stability risks associated with climate-related activities.
Climate Risk Reporting Framework Under Development

Bank Negara Malaysia, the nation's central bank, is actively developing a framework that will require financial institutions to disclose their climate risk exposures. This new reporting requirement is contingent upon the finalisation of classifications for green assets, a process being undertaken in collaboration with the Securities Commission Malaysia and the World Bank. The objective of this framework is to enable more informed decision-making and detailed analysis of risks related to climate change in fundraising, lending, and investment.
Green Asset Classification Expected This Year

A significant step towards implementing these reporting requirements is the anticipated release of the first draft of the green assets classification by the end of the current year. This draft will be made available for feedback from industry stakeholders, allowing for a collaborative approach to developing robust and practical classification standards. The insights gained from this consultative process will be instrumental in shaping the final guidelines.
Prudential Standards May Be Adjusted

The information collected through the mandatory reporting of climate risk exposures will be critically assessed by the central bank. This data will guide considerations for potential adjustments to existing prudential standards. The aim is to ensure that these standards adequately reflect the evolving risks stemming from climate-related exposures across the financial ecosystem, which encompasses banks, insurers, venture capital, and private equity firms.
Industry Engagement and Alignment

In parallel with these regulatory developments, major financial players are already taking steps to align their operations with global climate objectives. CIMB Group Holdings Bhd, Malaysia's second-largest lender, has joined a global coalition of 130 banks committed to aligning their business practices with the UN Sustainable Development Goals and the Paris Agreement. This voluntary commitment by leading institutions signals a broader industry trend towards addressing climate change impacts.

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Will banks have to disclose climate risk exposure soon?

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