Bank Negara Malaysia (‘BNM’) issued a policy document on
Climate Risk Management and Scenario Analysis (‘Climate Risk Management Policy Document’) on 30 November 2022
1. This follows from an exposure draft issued by BNM on 27 December 2021.
Application
The Climate Risk Management Policy Document applies to licensed banks, licensed investment banks, licensed Islamic banks (including international Islamic banks), prescribed development financial institutions, licensed insurers (including professional reinsurers), licensed takaful operators (including professional retakaful operators) and financial holding companies.
Financial institutions (excluding financial holding companies) are required to comply with the provisions in the Climate Risk Management Policy Document at the following levels:
Financial holding companies are also required to comply with the provisions in the Climate Risk Management Policy Document on a consolidated level basis.
Locally incorporated foreign financial institutions and branches of foreign financial institutions operating in Malaysia are permitted to leverage their group or parent company’s climate-related policies and procedures to meet the requirements of the Climate Risk Management Policy Document.
Summary of main requirements
The Climate Risk Management Policy Document recognises the material risks posed by climate change to the safety and soundness of financial institutions and sets out BNM’s requirements and guidance on climate risk management and scenario analysis by financial institutions. The boards of directors of financial institutions shall have overall responsibility and accountability to safeguard the financial institutions’ resilience against climate-related risks and evaluate the risks and opportunities arising from climate change in assessing and approving the financial institutions’ strategies and business plans.
In particular,
Appendix 1 of the Climate Risk Management Policy Document provides a summary of 14 principles and specific requirements on the management of climate-related risks by financial institutions, with the aim to enhance the resilience of the financial sector against climate-related risks under six broad categories. Appendix 1 is reproduced
here.
Further elaboration on the 14 principles outlined in
Appendix 1 are set out in sections 8 to 13 of the Climate Risk Management Policy Document.
Implementation plan
A financial institution is required to perform a gap analysis between its existing practices in managing climate-related risks and the requirements contained in the Climate Risk Management Policy Document and to highlight all key implementation gaps. It must also develop a board-approved implementation plan with a clear timeline, as well as interim targets and milestones to address the gaps identified. Both the gap analysis and implementation plan must be submitted to BNM no later than six months after the issuance date of the Climate Risk Management Policy Document.
A financial institution must immediately notify BNM if the financial institution identifies any issue that may affect its full compliance with the requirements in the Climate Risk Management Policy Document by the respective effective dates mentioned in the following section of this article.
Effective dates
The Climate Risk Management Policy Document came into effect on 30 November 2022, subject to the following:
Notwithstanding the foregoing, the following requirements of the Climate Risk Management Policy Document shall come into effect on 31 December 2024: