Malaysia’s standard and Islamic banks in addition to the general monetary sector have publicity to main sources of greenhouse gasoline by way of the financing of 4 sectors that account for 83% of their direct emissions publicity, in keeping with a brand new examine.
The RFI Basis’s “Figuring out the Local weather Dangers Going through Malaysia’s Monetary System” report launched on Monday (Nov 2) identifies the climate-related monetary dangers dealing with Malaysia’s banking system and capital markets because of the greenhouse gasoline (GHG) emissions that outcome from actions financed within the economic system.
The report presents an in depth top-down quantitative evaluation to know the sources – from financial institution financing and capital markets – of financing for the GHG emitted by each direct producers and households, in keeping with Blake Goud, CEO of the RFI Basis.
The examine goals to indicate an estimate of tips on how to allocate GHG emissions to the sources of financing behind it that will be affected as the prices of these emissions grow to be internalized, mentioned Goud.
This analysis is a part of a sequence that will probably be performed by RFI on Indonesia, UAE, Saudi Arabia, Bangladesh and Turkey over the following 12 months.
Key takeaways from RFI’s report:
By elevating consciousness of the assorted local weather dangers within the monetary system, the examine can assist monetary establishments, together with Islamic banks, to enhance their skill to handle materials ESG points, Goud defined.
“These efforts will assist the Malaysian finance trade higher handle its climate-related dangers and help achievement of the Paris Settlement targets,” he mentioned.
“By understanding the local weather dangers, it will assist stakeholders together with policymakers and regulators to introduce insurance policies which contribute to a low carbon economic system.”
Varied organisations have supplied analysis on local weather points and Islamic finance.
Amongst these are the Council of Islamic Banks and Monetary Establishments (CIBAFI) which launched its briefing “Local weather Change and its Implications for the Monetary Business” in September.
Others just like the UKIFC and Al Baraka Banking Group have performed analysis and devised methods to assist converge Islamic finance and the UN’s Sustainable Improvement Targets (SDGs) that features local weather points.
Goud argued that while there have been efforts by numerous organisations to analyse GHG and financing actions there isn’t detailed analysis notably on Organisation of Islamic Cooperation (OIC) international locations or which particularly escape the position of Islamic monetary establishments.
“With this analysis, we wish to show the significance of understanding the contours of climate-related monetary dangers in OIC markets with a big Islamic finance,” he mentioned.
METHODOLOGY AND LIMITATIONS IN RESEARCH
RFI’s methodology makes use of the analytical methodology P9XCA that was developed in 2011 by Antoine Rose from the Paris-based Sustainability Chair for Crédit Agricole CIB and piloted with a number of banks by ADEME, the French Company for Ecological Transition.
Goud mentioned that information availability is a key problem and RFI’s top-down evaluation begins to fill the gaps with an order of magnitude quantification and mapping of GHG emissions.
“The banks must take the following steps in following up with extra detailed bottoms-up evaluation on their financing property, improve their disclosure to comply with nationwide steerage and lead by doing on reporting in keeping with the Process Pressure on Local weather-related Monetary Disclosures’ suggestions,” Goud defined. “[And] then they should develop new financing/funding insurance policies to handle the dangers they establish of their steadiness sheets.”
“Higher information is a primary step, however there’s far more to do past that and the launch of the report kicks will kick off that course of,” added Goud.
“We do not see releasing the top-down estimate because the conclusion of this analysis course of. There’s extra engagement wanted, by RFI and others, to verify banks and different monetary establishments see and tackle these dangers.”
(Reporting by Hassan Jivraj; Modifying by Emmy Abdul Alim firstname.lastname@example.org)
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