RFI Foundation estimates the financed greenhouse gas emissions in Malaysia’s financial system

4 November 2020, London, United Kingdom – The RFI Foundation released a report analyzing the greenhouse gas (GHG) emissions directly and indirectly financed by Malaysia’s financial sector.  The report, presented on Monday during a webinar organized with the World Bank’s Inclusive Growth and Sustainable Finance Hub in Malaysia, provides a quantitative, top-down estimate about how to estimate how much GHG emissions are financed by equity and debt capital markets and bank financing, respectively.

Four sectors represent over 80% of Malaysia’s GHG emissions and the potential risk they represent in unpriced costs will have a spillover effect across most of the financial assets in Malaysia. This risk is currently under-analyzed in relation to the aggregate impact when the related costs become internalized.  Several major sources of GHG emission risks have strong pass-through impacts onto other sectors in Malaysia’s economy include electricity generation, transportation and waste management. These risks will affect sectors including manufacturing, wholesale & retail and hospitality sectors.

By undercounting the costs related to financed GHG emissions, financial institutions understate the financial costs that companies will have to bear in coming years. From the perspective of a bank or investor, the prospect of these costs becoming a realized cost instead of an unpriced externality increases the risk that these companies’ earnings or creditworthiness will weaken over time.