THE ongoing Covid-19 predicament for the last year and a half has shown us that a global crisis can cause surmountable, far-reaching impact, that has trickled down into the community and the economy.
The Malaysian unemployment rate has seen an increase from 3.3% in 2019 to 4.5% in 2020. The economic impact in the wake of the virus has definitely been felt across various industries (tourism, retail, manufacturing, real estate, construction, etc).
The global climate crisis is no different – we are seeing incremental natural catastrophes happening around the world. These events pose risks that are as far-reaching and severe, if not more devastating, as this health crisis impacts the lives of people and businesses.
Climate-related risks impact all sectors, economies, businesses, and individuals. It is therefore imperative that every entity – from governments and regulators to corporates, small businesses, and individuals play their part to collectively make a significant impact to understand – i.e. 1) how your action can impact the climate and broader environment; and 2) how changes in climate impacts us, to increase resilience towards climate change events.
In the financial services industry, there is growing awareness by regulators around the world building traction to understand climate-related risks and implications on financial stability. In Malaysia, Bank Negara Malaysia (BNM) has been taking a proactive role in the climate developmental agenda. In April 2021, BNM released the Climate Change and Principle-based Taxonomy (CCPT) guidance document. The paper acts as a guide for financial institutions to assess and classify economic activities (i.e. business activity being financed/insured/invested in by financial institutions) that contribute to climate objectives such as climate change mitigation and adaptation. It also hopes to promote an orderly transition to a low-carbon economy.
The CCPT guidance document serves as an impetus for financial institutions to integrate climate change considerations from both risks and opportunities into their strategies. The guide will also influence financial institutions to consider embedding the taxonomy’s guiding principle assessments within existing and prospective customer due diligence, as well as within investment decisions in financial assets.
Financial institutions need to begin thinking about how they can incorporate climate and sustainability considerations into business strategies, risk appetite statements, and institutionalising the mindset and advocacy for sustainability throughout the organisation. Financial institutions can also begin taking baby steps in determining data requirements needed followed by data collection to enable identification and classification of an institution’s risk profile for monitoring over time.
What can businesses do?
As businesses transition towards more sustainable business practices, they need to consider both the impact of climate change, as well as the impact of their business operations onto the climate and broader environment. Businesses should plan and take proactive measures to ensure resiliency by considering how they can adapt to changing climate events, as well as steps to conduct business in an ethical, sustainable manner. It is also wise for businesses to have conversations with their financiers, to understand the expectations and types of information or data required for financiers’ conduct on customer or investee due diligence.
The success of a smooth transition towards a low-carbon economy and increase in resiliency towards climate change requires a joint collective effort by every individual and organisation. The renowned Sir David Attenborough said at the recent Joint Committee on Climate Change Conference in June 2021, “All of us, no matter who we are, have the responsibility to care for the planet.
This article was contributed by Deloitte Malaysia senior manager of financial industry risk and regulatory Mok Fan Wai.