28 May 2021

On 30 April 2021, Bank Negara Malaysia (“BNM”) issued the Climate Change and Principle-based Taxonomy guidance document which aims to:

  • provide an overview of climate change and its impact on businesses and households as well as the broader economy; 
  • introduce a principle-based taxonomy for financial institutions to assess and categorise economic activities according to the extent to which the activities meet climate objectives and promote the transition to a low-carbon economy; and 
  • facilitate standardised classification and reporting of climate-related exposures to support risk assessments at the institution and systemic levels, strengthen accountability and market transparency, and encourage financial flows towards supporting climate objectives.

The document features: 

  • guiding principles for the assessment of economic activities; 
  • guidance on external certification and verification;
  • classification of economic activities based on positive impact on climate change objectives, potential negative effects to the broader environment and measures taken to reduce harmful practices; 
  • examples of the following: 
    • financing for an expansion of oil palm plantation; 
    • financing for a broiler chicken house; 
    • refinancing a green building; 
    • financing in fossil-fuel related activities; and 
    • investment in green assets.

The document, which serves as a guide for financial institutions supervised by BNM, may also be used by other stakeholders in the financial sector such as capital market players, intermediaries and analysts to guide in investment and asset selection decisions, as well as rating agencies in rating decisions.