Bank Negara Malaysia issues policy document on climate risk management and scenario analysis

11 January 2023

On 2 December 2022, Bank Negara Malaysia (“BNM”) issued a policy document on climate risk management and scenario analysis. This policy document sets out principles and requirements on climate risk management and scenario analysis for financial institutions to enhance the financial sector's resilience against climate-related risks and to facilitate a just and orderly transition to a low-carbon economy.

BNM expects financial institutions to have an effective risk management framework that integrates all material risks, which extends to climate-related risks and their interactions with other risk types.

Financial institutions play an important role in the transition period towards a low-carbon economy. During the transition process, the actions that BNM expects financial institutions to take are:

• mitigate risks surrounding economic dislocation due to abrupt withdrawal of financing from economic sectors or activities that are vulnerable to climate-related risks, which may have potential adverse feedback loops to the wider economy and financial stability; 
• promote transition by customers and counterparties towards more sustainable practices;
• expand the financing of climate-related opportunities and sustainable economic activities, including offering new solutions, markets, and products to support a low-carbon economy;
• better align business strategies and climate-related targets in supporting global and national; and commitments to address climate change.