KUALA LUMPUR: Malaysian banks are exposed to a broad range of nature-related physical and transition risks given the types of loans provided to the various economic sectors, a report shows.

       According to a report titled An exploration of nature-related financial risks in Malaysia, it was found that 54% of the commercial loans portfolio that was analysed is exposed to sectors that depend to a high extent on ecosystem services.

       This exposes local banks to physical risk from ecosystem deterioration, particularly those related to deterioration in surface water (29%), climate regulation such as carbon storage (26%), and flood and storm protection (16%).

       Of the commercial loans portfolio, 87% is also exposed to sectors that strongly impact ecosystem services, thus potentially facing a higher level of transition risk from changes in regulations and policies, particularly those related to greenhouse gas emissions (61%), water use (55%), and terrestrial ecosystem use (43%) among others.

       The report was published by Bank Negara and the World Bank yesterday.

       The exploratory study, jointly undertaken by both parties, uses local and global data to examine the relationship between the Malaysian financial sector and nature. It also assesses potential exposures to nature-related risks through banks’ financing activities.

       “Ecosystem and planetary health matters to economic and financial stability. While the primary responsibility for addressing these priorities rests with the government, the financial industry and authorities have a critical interest in deepening our understanding and appreciation of the interactions between climate and nature-related risks because how these risks evolve, both affect and are affected by, the actions of financial institutions,” Bank Negara governor Tan Sri Nor Shamsiah said in a statement.

       According to the central bank, the report provides a launch pad for further study on nature-related risks and highlights the importance of tackling nature loss and climate change in a coherent manner. It also recognises the opportunity to leverage on the progress made on climate initiatives to address broader nature-related risks.

       Bank Negara will continue to engage with the financial sector and other key stakeholders to build capacity in this area.