KPMG and IBFIM to drive sustainability and VBI initiatives for Malaysia’s Financial Services industry

KPMG in Malaysia has joined forces with the Islamic Banking and Finance Institute Malaysia (IBFIM) to drive sustainability and Value Based Intermediation initiatives for Malaysia’s financial services industry. This collaboration aims to provide crucial insight and guidance on environmental, social and governance (“ESG”) factors for financial institutions.

 

Speaking on this collaboration, Datuk Johan Idris, Managing Partner of KPMG in Malaysia, opined that the financial services industry is well positioned to lead sustainable developments in Malaysia.

 

“We believe this collaboration comes at just the right time. Malaysian financial institutions are now more cognizant of the potential impact ESG factors could have on their business operations, risk management, investment decisions and disclosures. There is huge potential here to unlock finance across critical business value chains, thereby becoming a vital innovative financing modality to fill the Sustainable Development Goals’ funding gap,” he said.

Malaysian authorities have been fully supportive of pushing the sustainability agenda among our financial institutions. In April 2021, Bank Negara Malaysia (“BNM”) issued the finalized ‘Climate Change and Principle-based Taxonomy’ guidance document for financial institutions to assess and classify economic activities that contribute to climate change mitigation and adaptation.^[1] Meanwhile in April of this year, Malaysia became the first country to issue a US Dollar Sustainability Sukuk whereby proceeds will be used for eligible social and green projects aligned to the United Nations’ Sustainable Development Goals (SDG) Agenda.^[2]

“IBFIM is honored to be collaborating with KPMG in Malaysia. We believe that this survey will provide an overview of the financial industry’s state of play in embracing sustainable practices, especially in the Islamic finance sector. It is our hope that the outcome of the survey will assist in identifying the right actions and strategies in shifting towards a sustainable future,” said Yusry Yusoff, Chief Executive Officer of IBFIM.

This initiative augurs well with the Joint Committee on Climate Change’s (JC3) aspiration for the industry to identify and address critical data gaps that can facilitate financial institutions to make informed assessments and judgments particularly for the institutions’ sustainability and climate risk management, disclosure and scenario analysis.” added Yusry.

To kick-off the collaboration, KPMG and IBFIM will conduct a Sustainability and Value Based Intermediation Awareness (“SVBI”) Survey for Financial Institutions (“FI”) to gauge the financial industry players’ sustainability initiatives and approaches towards ESG challenges including climate change and climate risk. The results of the survey will enable KPMG and IBFIM to develop a report that illustrates the current development by financial institutions in Malaysia in incorporating sustainability and particularly for Islamic finance institutions, VBI considerations, in the institutions’ overall strategy.

Specific for Islamic financial institutions, BNM in collaboration with the industry introduced VBI to assist financial institutions, including takaful operators, to deliver the intended outcomes of Shariah through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment.

Leading this collaborative project is Kasturi Nathan, Head of Sustainability at KPMG in Malaysia, who elaborated, “At the end of this exercise, KPMG and IBFIM aim to identify and enhance awareness on ESG risks and its impact on financial stability. Malaysia has progressively demonstrated global leadership and commitment to sustainability within the Financial Services industry. We hope that this collaboration can assist in cultivating a continuous drive for sustainable developments and pave the way to deliver impactful holistic outcomes across all industries, not just the financial services.”

Also, as part of this collaboration with IBFIM, KPMG will develop and provide a series of training sessions for representatives of banks, insurance and takaful companies in Malaysia. The training programs will cover topics in sustainable finance, responsible banking and climate-related risks and opportunities.

Based on the current regulatory framework and the finalization of BNM’s Climate Change and Principle-based Taxonomy, which will require all financial institutions to assess its economic activities towards climate action, KPMG will design its training sessions to also cater to all main requirements under the VBI. It shall also include integration of ESG considerations in financial institutions’ scenario analysis and stress testing.