Malaysian Banking Conference 2022

SPECIAL ADDRESS

YB SENATOR DATUK SERI UTAMA TENGKU ZAFRUL BIN TENGKU ABDUL AZIZ
MINISTER OF FINANCE MALAYSIA

MALAYSIAN BANKING CONFERENCE 2022
BANKING ON CHANGE: TURNING THE ESG MOMENTUM INTO ACTION

SHANGRI-LA KUALA LUMPUR

13 SEPTEMBER | 9.00 – 10.30 AM

SALUTATIONS

Bismillahirahmanirrahim

Yang Berbahagia Tan Sri Azman Bin Hashim
Chairman of the Asian Institute of Chartered Bankers (AICB) and Chairman Emeritus and Honorary Adviser of AMMB Holdings Berhad

Yang Berbahagia Dato' Khairussaleh Bin Ramli
Chairman of the Association of Banks in Malaysia (ABM), Vice Chairman of AICB, Group President and Chief Executive Officer of Malayan Banking Berhad

AICB and ABM Council Members,

Members of the media,

Distinguished guests,

Assalammualaikum and a very good morning.

1. To begin, I’d like to thank our gracious co-organizers, the Asian Institute of Chartered Bankers, AICB, and the Association of Banks in Malaysia, ABM, for the honour of delivering this morning’s special address and for bringing us all together. It is a privilege for me to be here to commemorate the inaugural Malaysian Banking Conference 2022.
   
   

INTRODUCTION

Ladies and Gentlemen,

2. The world we know is changing rapidly, whether in social, political, economic, or, more importantly, the environment. The pandemic, as well as the on-going geopolitical tensions, have highlighted the importance of ESG. From Davos to Bali, it has increasingly become the top agenda for many governments around the world, including the private sector.
   
   
3. Malaysia is no exception. We are increasingly seeing the impact of extreme weather events on livelihoods and critical infrastructure. For example, the December 2021 floods resulted in 50 deaths, 400,000 people being displaced from their homes, and an overall estimated loss of approximately 6 billion ringgit.
   
   
4. We also made front-page news as the international community expressed concern on the welfare of our factory and plantation workers. These issues are serious for Malaysia, as it has tarnished our reputation, institutions, businesses, and, most importantly, our people.
   
   
5. Today, the international investment community is more focused on ESG-related risks and opportunities. Global funds, for example, are more assertive when it comes to distancing themselves from companies with unsustainable practices.
   
   
6. This has led to companies embracing ESG to ensure they do not lose access to financing or capital. According to Bloomberg, with the assumption of 15% growth per year, ESG assets under- management are on track to reach more than 50 trillion US dollars by the end of 2025.
   
   
7. Beyond funding, there is also a development upside to this transition. According to IMF, green investments, such as renewables, low carbon mobility and energy efficiency offer a huge opportunity – potentially raising global GDP by approximately 2 per cent, and creating millions of new jobs throughout this decade.
   
   
8. Thus, the transition to a sustainable and climate resilient economy is no longer a nice-to-have, but a must-do that makes for sound economic policy while managing key risks and avoiding irreversible damage to planet and society.
   
   
9. Of course, this comes with its own challenges. The prolonged geopolitical tensions have worsened supply constraints in global hydrocarbon markets and forced economies globally to focus on energy security over sustainability in the near term. This has made it more difficult for governments all over the world to balance between supporting inclusive economic development and growth, providing secure and reliable access to energy, and promoting environmental sustainability.
   
   
10. For example, we have seen the EU having to “revisit” coal usage for now due to the supply constraints of natural gas to ensure there is sufficient electricity to power their homes. The EU reduced hard coal production by 79% between 1990 to 2021, but has since increased coal production by 15% in the first half of 2022.
    
    
11. If our institutions and businesses are to remain competitive, we must galvanise our efforts towards better ESG and sustainability practices. This is how we, as a nation continues on the path to recovery and building back better, move forward and deal with today’s challenges while also preparing ourselves for future ones.

GOVERNMENT’S COMMITMENT TOWARDS ESG/CLIMATE ACTION

Ladies and Gentlemen,

12. For us Malaysians, we should also stand ready and be prepared for any challenges in the future.
    
    
13. The good news is that the sustainability journey in Malaysia began more than a decade ago with the launch of the Green Technology Funding Scheme in 2010. Since then, the Government has remained committed to delivering sustainable development while combating climate change.
    
    
14. Being a champion of sustainability, Malaysia has adopted the 2030 Agenda for Sustainable Development, which began in the Eleventh Malaysia Plan, and subsequently reflected in the SDG-aligned Twelfth Malaysia Plan.
    
    
15. Among key priorities outlined include reducing greenhouse gas emissions (GHG) to 45% of GDP by 2030. A comprehensive National Energy Policy will provide long-term guidance to achieving Malaysia’s carbon neutrality goal, as well as a target for renewable energy to account for 31% of Malaysia's total energy capacity mix by 2025.
    
    
16. The Government has also reaffirmed its commitment to achieve carbon neutrality by 2050, and urged all GLCs and GLICs to set medium-term and similar Net-Zero targets.
    
    
17. On the social front, the Yang Amat Berhormat Prime Minister has announced a number of social initiatives aimed at improving workers’ welfare.
    
    
18. These include increasing the minimum wage to 1,500 ringgit for all civil servants as well as staff of GLCs and GLICs. The Government has also urge all listed GLCs to achieve at least 30% women board representation by 2023.
    
    
19. Furthermore, the Twelfth Malaysia Plan envisions average monthly household incomes to reach 10,065 ringgit, the economic gap between central and Sabah-Sarawak regions to narrow and for Malaysia to be a high-income nation by 2025.
    
    
20. Therein, we must remind ourselves that the relationship between the environment and the communities within them are symbiotic, with one being ever closely linked to the other.
    
    
21. In terms of showing ESG leadership, the Government has introduced the Principles of Good Governance for Government-Linked Investment Companies, or PGG, which includes the recommendation to establish a governance structure for the oversight of ESG elements in future investment strategies.
    
    
22. Collectively managing over 1.7 trilion ringgit in assets, GLICs yield considerable influence to guide and empower SMEs to embrace ESG principles.
    
    
23. Similarly, the Government has also launched the MySDG Foundation. In collaboration with the United Nations, this is a platform for the private sector and NGOs to contribute to the advancement of Malaysia’s SDG goals.
    
    
24. Through our whole-of-nation approach on sustainability, the Government will continue efforts to ensure SDG elements are embedded in our annual budgets. Since Budget 2021, followed with Budget 2022, I assure that this will also be part of Budget 2023.
    
    
25. Measures taken by the Government to improve budget transparency and public involvement include the issuance of a Pre-Budget statement, as well as Public Consultation Papers based on the Government's priority areas for the year.
    
    
26. Between the six (6) Public Consultation Papers issued for Budget 2023, two (2) of them were ESG related (i.e. Application of Environmental Principles, Social and Governance (ESG) In Investments by Related Investment Companies Government (GLIC) and Minister of Finance Incorporated Company (MKD), and Improvement in the Government’s Green Procurement Policy).
    
    
27. These principles and approaches will guide us in formulating and implementing Budget 2023. This includes not only being RESPONSIVE to the people's current needs, but also RESPONSIBLE in ensuring that we do not facilitate current needs at the expense of future growth, and in striking that balance, being REFORMIST in our approach to address key structural challenges and build our Rakyat and businesses' competitiveness and resilience.

THE ROLE OF THE FINANCIAL SECTOR TOWARDS SUPPORTING ESG/CLIMATE ACTION

Ladies and Gentlemen,

28. Just as it is crucial for us to exit this pandemic safely and systematically, equally critical is for us to build back better and stronger.
    
    
29. That is why the financial sector must step up and play its part in the climate and sustainability agenda. While it is encouraging to see the financial sector stepping up on this front, including via the offering of sustainable finance solutions and assistance to companies in their transition journey, more can and must be done.
    
    
30. In that regard, it is heartening that policymakers, regulators and national players such as the Malaysia Climate Change Action Council (MYCAC), Bank Negara Malaysia (BNM), Securities Commission Malaysia (SC), Bursa Malaysia (Bursa) and the Joint Committee on Climate Change (JC3), are working together with the financial institutions, non-financial corporates, industry associations and climate experts to drive progress in the sustainable finance landscape, thereby preparing the Malaysian financial system to be climate resilient.
    
    
31. A case in point is the launch of the Financial Sector Blueprint (FSB) 2022 to 2026 earlier this year which sets the course for the development of the financial sector over the next five (5) years.
    
    
32. One of the key themes set out was finance for sustainability, via: i) steady progress in greening finance and financing green; as well as ii) wider adoption of value-based intermediation (VBI) to serve the economy, community and environment.
    
    
33. From this, key targets and milestones include achieving at least 50% of new financing for green and transitioning activities and a steady growth in VBI-aligned assets.
    
    
34. Positioning the financial system to facilitate an orderly transition to a greener economy was similarly identified as a strategic thrust to complement the three (3) broad themes and key targets.
    Within this space, the following actions were outlined:
    
    
1. Integrate climate-related and environmental risks in prudential regulation and supervision;
   
   
2. Support an orderly transition to a low-carbon economy; and
   
   
3. Integrate climate risks in BNM’s internal functions and operations.
   
   
35. In addition to FSB, allow me to highlight also some recent sustainable initiatives and developments across the financial sector in 2022 including:
    
    
1. The Task Force on Climate-Related Financial Disclosures (TCFD) Application Guide for Malaysian Financial Institutions released on 29 June 2022 by JC3;
   
   
2. BNM’s 2024 Climate Risk Stress Testing Exercise Discussion Paper announced on 30 June 2022; and more recently,
   
   
3. The launch of two (2) ESG-themed indices by Bursa alongside its index partner FTSE Russell, namely the FTSE Bursa Malaysia Top 100 ESG Low Carbon Select Index (FBM100LC) and the FTSE Bursa Malaysia Top 100 ESG Low Carbon Select Shariah Index (FBM100LS) on 29 August 2022.
   
   
36. While we move ahead to drive ESG however, it would be remiss of me not to highlight the importance of addressing financial crime. The road towards sustainable finance (the alignment of financial operations with sustainable development) would not be complete without the development of strong and efficient means to similarly fight financial crime.
    
    
37. Given the increasing frequency and complexity of financial scams, I call on the financial sector to step up collaboration with relevant law enforcement agencies to strengthen controls and fraud management practices so swift action can be taken to address this problem.
    
    
38. Financial institutions must continue to step up efforts to raise awareness among the public on the latest scam tactics and important cyber hygiene practices. This includes reminding their customers to be wary of attempts for phishing, and that the device used is updated and in a secured state, before carrying out online banking transactions.
    
    
39. To achieve these targets, it is equally essential to build a strong talent pipeline of bankers capable of ensuring the domestic banking sector’s sustainability, adaptability and growth. This supports the Government and BNM’s continued effort in stressing the importance of financial literacy and sound financial decision making in the long run, via the various efforts under the Financial Education Network.
    
    
40. On this note, I am pleased to see industry bodies such as AICB and ABM coming together to collaborate and support the industry in its ESG journey and address the various policy and capacity building issues collectively.
    
    
41. I would also like to commend both institutes for their dedication in their mission to continuously promote a more professional and ethical banking ecosystem which will further strengthen the resilience of our financial system. No doubt, this collaborative approach will help us move forward not only as an industry but as a nation.

CLOSING

Ladies and Gentlemen,

42. As in the past, I am confident that the financial sector will rise to the occasion and be a catalyst for reform, drive sustainability, and contribute to our collective goal of a “Prosperous, Inclusive and Sustainable Malaysia”.
    
    
43. Given this heightened focus on ESG, this Malaysian Banking Conference 2022 themed “Banking on Change — Turning the ESG Momentum into Action” is timely to bring together key Malaysian banking and financial leaders to share ESG insights and ideas with other industry players to drive the growth of sustainable finance and the implementation of ESG practices locally.
    
    
44. To push for a proactive execution and turn the momentum into action, I am pleased to see the industry come together through the efforts of the AICB and ABM. Platforms such as these are extremely important to strengthen collaboration among bankers, discuss key ESG-related risks and issues, as well as share possible solutions to keep moving the ESG agenda forward.
    
    
45. Additionally, I am heartened to know that AICB and ABM members are keenly aware of their role and the impact of ESG in the financial sector. However, to achieve a critical mass mindset change on ESG matters, we need the entire Malaysian banking ecosystem — the Government, private sector, civil society organizations, and yes, banks and financial institutions — to further collaborate, raise awareness and most importantly, as one Keluarga Malaysia, find solutions together.
    
    
46. Encouraged by the significant progress of the Government and the financial sector in this space, with our collective commitments, I am confident of achieving the nation’s net-zero carbon goals.
    
    
47. Thank you for your attention and I wish you a fruitful conference ahead.

Wabillahi taufiq wal hidayah Wassalamualaikum warahmatullahi wabarakatuh.