KUALA LUMPUR, Nov 5 (Bernama) -- Bursa Malaysia closed higher, buoyed by Bank Negara Malaysia’s (BNM) decision to maintain the Overnight Policy Rate (OPR) at 2.75 per cent, alongside positive cues from Wall Street. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 19.30 points, or 1.19 per cent, to 1,635.86 from Wednesday’s close of 1,616.56. The benchmark index opened 6.72 points higher at 1,623.28, and fluctuated between an intraday high of 1,642.44 and a low of 1,622.62 during the trading session. However, market breadth was negative, with losers outnumbering gainers 723 to 497, while 466 counters were unchanged, 1,075 untraded and 10 suspended. Turnover rose to 3.74 billion units valued at RM3.61 billion compared with yesterday’s 2.81 billion units valued at RM2.57 billion.
Ever since the 2015 Paris Agreement included a call for private funding to reduce global greenhouse gas emissions, the finance sector’s role in climate action has been under growing scrutiny. Major banks and asset managers around the world have made net-zero commitments, leading many to believe that these financial giants would bear much of the cost of decarbonizing the global economy.
However, this optimism is misplaced and dangerous, according to the Institute of International Finance (IIF), an industry group that includes members such as BlackRock Inc., Goldman Sachs Group Inc., and UBS Group AG. The IIF recently published a report challenging the idea that the finance sector can single-handedly drive the energy transition.
For the past several years, there has been a “finance-centric theory of change” circulating among policymakers and regulators, which assumes that if banks’ portfolios are aligned with a net-zero future, the global economy will naturally decarbonize. But the IIF argues this view "overestimates the capacity of banks, insurers, and asset managers" to influence their clients' actions. The real focus, they say, is on delivering financial returns, and investments in energy transition will only be made if they are profitable.
“Expecting banks to rapidly reallocate their portfolios may not align with maintaining a profitable, diversified business model,” the IIF warned. The group emphasized that banks cannot force clients to adopt certain types of financing, particularly when it comes to sectors like fossil fuels, which remain profitable.
At the same time, banks and investors are under pressure from activists and even central bankers to move faster in addressing global warming. Environmental advocates, like Jeanne Martin of ShareAction, argue that financiers have a responsibility to play a larger role in decarbonizing the global economy. While they can’t do it alone, Martin insists they could be doing much more.
The IIF also pointed out that regulatory approaches to transition finance are inconsistent, leading to confusion. Multiple sets of rules create complications for how the financial sector should support carbon-intensive sectors in their transition to greener operations.
In addition to this, the IIF highlighted a key challenge: in the short term, transition finance could worsen the metrics used to assess the financial industry’s contributions to climate goals, such as emissions enabled by lending and investing.
As Wall Street navigates these complex issues, a recent study by Climate X reveals that many banks are underestimating the risks posed by climate change. While they are beginning to measure climate risks, they aren’t adequately adjusting their business models to address the physical disruptions expected as the economy faces climate shocks.
According to Climate X’s Kamil Kluza, the failure to account for these risks is reminiscent of the 2008 recession, where a lack of focus on liquidity risk led to economic collapse. A similar blind spot now exists around climate risk, potentially setting up the financial sector for future challenges.
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