Bank Negara Malaysia (‘BNM’) issued an updated Policy Document on Climate Risk Management and Scenario Analysis (‘Updated Policy Document’) on 17 March 2025.
 
The Updated Policy Document came into effect on its date of issuance, with the exception of paragraphs 14.8 and 14.9 on annual climate related disclosures in line with the National Sustainability Reporting Framework  (“NSRF”).
 
The Updated Policy Document supersedes the policy document of the same name issued by BNM on 30 November 2022 (‘Superseded Policy Document’), and is to be read with the legal instruments, policy documents and guidelines referenced in paragraph 6 of the Updated Policy Document.
 
Application
 
Like its predecessor, the Updated Policy Document applies to licensed banks, licensed investment banks, licensed Islamic banks (including licensed international Islamic banks), prescribed development financial institutions, licensed insurers (including professional reinsurers), licensed takaful operators (including professional retakaful operators) and financial holding companies approved under the Financial Services Act 2013 and the Islamic Financial Services Act 2013.
 
Financial institutions (excluding financial holding companies) are required to comply with the provisions in the Updated Policy Document at the following levels: 

Financial holding companies are required to comply with the provisions in the Updated 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 Updated Policy Document.
 
Summary of main requirements
 
As with the Superseded Policy Document, the Updated Policy Document sets out the principles and specific requirements on the management of climate-related risks by financial institutions, with the aim of enhancing the resilience of the financial sector against climate-related risks. The 14 principles are summarised in Appendix 1 of the Updated Policy Document which is reproduced here.
 
Further elaboration on the 14 principles outlined in Appendix 1 and the requirements and guidance relating to each principle are set out in paragraphs 9 to 14 of the Updated Policy Document¹.
 
The board of directors of a financial institution has the overall responsibility and accountability to safeguard the financial institution’s resilience against adverse impact of climate-related risks and the board shall on a periodic basis evaluate and consider the risks and opportunities arising from climate change in assessing and approving the financial institution’s strategies and business plans.
 
The senior management of a financial institution shall, among others, implement policies and procedures to build and support climate resilience and review the effectiveness of the organisational structure and appropriately define the roles and responsibilities of key business and risk functions in supporting climate resilience and managing climate related risks.
 
Main changes from the Superseded Policy Document
 
The provisions in the Updated Policy Documents are substantially similar to the provisions of the Superseded Policy Document with the exception of three main areas.
 
First, paragraphs 14.4 and 14.6 now impose mandatory requirements on a financial institution to: 

Secondly, paragraphs 14.1 to 14.5 of the Superseded Policy Document have been replaced by, amongst others, implementation dates in paragraph 14.8 of the Updated Policy Document that are aligned with the implementation time frame under the NSRF, namely:
                                                                                                                             

 
Thirdly, paragraph 14.9 of the Updated Policy Document requires financial institutions to perform external reasonable assurance on their Scope 1 and 2 Greenhouse Gas (GHG) emissions in accordance with the effective dates set out below and the assurance framework under the NSRF:
 

 
Supervision
 
The management of climate-related risks of a financial institution will be monitored by BNM against the standards and guidance set out in the Updated Policy Document. A financial institution is required to maintain and make all relevant information readily available for submission upon request by BNM to facilitate ongoing supervision, including the implementation progress of the board-approved implementation plan which is specified by the Updated Policy Document to be a document outlining specific actions, timelines and roles and responsibilities for monitoring, reporting and management of climate-related risks, amongst other requirements.
 
The Updated Policy Document demonstrates BNM’s expectations for financial institutions to urgently take early action to implement changes to enhance resilience of the financial sector against climate-related risks, in view of the material financial risks of adverse climate change impact to the safety and soundness of financial institutions and the broader implications on the stability of the financial system and sustainability of domestic economic growth.  
 
Article by To’ Puan Janet Looi (Co-Head) and Tham Zhi Jun (Associate) of the Environment Social and Governance Practice of Skrine.
 

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