Investors are starting to feel the effects of climate change in an unexpected place - their financial returns. For this reason, there are now growing calls within the business community to improve the quality and coverage of climate risk disclosure.

The risks of climate change to cities and vulnerable communities are well known. Now, companies increasingly recognise that climate change can have an impact on their operations and financial assets too. As a result, reporting the risks of climate change through corporate climate disclosures has grown in relevance and importance.

There are different types of climate-related risks. Broadly, these include physical risks such as the direct impact of flooding or hurricanes on assets, or transition risks, which refer to the risks associated with the transition towards a low carbon economy. These risks need to be considered by businesses and investors that want to be prepared for future climate scenarios, with plans strategically put in place to navigate any challenges. While the mainstreaming of climate risk disclosure adds another layer of requirement for companies, it is crucial to ensure that data is available for investors to integrate disclosure information into their decision-making.

In this explainer video, we explore the importance of climate risk disclosure for climate action, why climate change can increase the risks associated with stranded assets, as well as popular guidelines for disclosing climate risk. The video features Dr. Kim Schumacher, associate professor in sustainable finance and ESG at Kyushu University, Japan, and Dennis Wan, regional lead on corporate engagement at CDP, the global non-profit that runs the disclosure system for investors, companies, cities and states.

Climate-Related Financial Risk Disclosure In Malaysia

Companies in Malaysia are already disclosing their climate risk data. In 2022, about 50 Malaysian companies voluntarily disclosed their climate-related data through CDP, which is double the number of climate disclosures by Malaysian companies through CDP for the previous year.

In keeping with a global trend, climate-related financial risk disclosures will become increasingly prominent in Malaysia, with upcoming mandatory disclosure requirements for climate-related financial risk in alignment with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.

Bursa Malaysia has set out new requirements for TCFD-aligned climate-related financial risk disclosures for Main Market and ACE Market listed corporations, to be implemented by the end of 2025 and 2026 respectively for these markets.

Similarly, the Joint Committee on Climate Change (JC3), a collaborative platform for climate resilience in the Malaysian financial sector co-chaired by Bank Negara Malaysia (BNM) and Securities Commission Malaysia, has released guidelines for financial institutions regulated by BNM to make TCFD-aligned climate-related financial risk disclosures, which is expected to be adopted by the end of 2024.

For more information on TCFD, visit the TCFD resources page on Bursa Sustain.