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RFI Foundation comments on the Malaysian green taxonomy and its alignment with Islamic finance

By RFI Foundation | 08-Jul-2020

London, United Kingdom, 8 July 2020 – The RFI Foundation provided detailed comment on Bank Negara Malaysia’s discussion paper “Climate Change and the Principle-based Taxonomy”.  Released at the end of 2019, the discussion paper provides a detailed classification system for green and brown activities financed by banks and insurers in Malaysia, including Islamic banks and takaful operators.

The RFI Foundation has been working extensively to promote the adoption of responsible finance practices by Islamic financial institutions.  In September 2019 together with Dubai Islamic Economy Development Centre, RFI organized a half-day roundtable bringing together Islamic banks, key asset owners, ESG-focused asset management firms, government officials and regulators hosted by Bank Negara Malaysia. The conclusions released following the roundtable included a call upon those across the financial service value chain to continue active discussions to ensure a faster pace of progress on sustainable finance which efforts such as this taxonomy will support.

Blake Goud, CEO of the RFI Foundation explained: “We congratulate Bank Negara Malaysia for taking the lead on the critical issue of financial institutions and regulators ensuring that financial institutions make full, complete, and transparent disclosures relating to their governance and measurement of material climate-related financial risks.  We offer our comments in the spirit of encouraging and supporting the development of a taxonomy to promote improved analysis of climate-related financial risk across the financial system, especially relating to Islamic financial institutions.”

The RFI Foundation’s comments which are publicly available address the following issues:

  • Stranded asset risks and resulting macroeconomic impacts for financial institutions
  • Taxonomy allocation of emissions to end-user economic activities
  • Relevance of financial stability considerations to the taxonomy, and
  • Ethical considerations involved in prioritizing climate change mitigation actions and the role of Shari’ah input to the taxonomy in light of its applicability to Islamic financial institutions.

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