Mismatch between green funding demand, supply decelerates sustainable projects — BNM

KUALA LUMPUR (Oct 20): Malaysia’s pledge to minimise its greenhouse gas emissions by 2030 is facing challenges in terms of a mismatch between demand and supply of funding for green technology, as well as information asymmetry.

Bank Negara Malaysia (BNM) assistant governor Fraziali Ismail said that considerable funding gaps remain in sustainable projects, despite the roll out of green financing through schemes such as the Green Technology Financing Scheme.

“Some institutions are allocating capital and steering financial flows towards more low-carbon, climate resilient activities. However, considerable funding gaps remain and public finance will likely be inadequate for this task, and there is, inevitably, a need to draw in private capital.

“The renewable energy sector, for example, requires a total of RM33.5 billion of funding by 2025, based on the projections provided by the Sustainable Energy Development Authority (SEDA) Malaysia,” he said in his keynote speech at the Financing Climate Action Conference held today.

The conference was held in conjunction with the International Greentech and Eco Products Exhibition and Conference Malaysia (IGEM) 2020, themed “Climate Action in the Malaysian Financial Sector”.

Citing the Asian Development Bank’s (ADB) report, Fraziali said green financing is still lacking and green investments remain underfunded.

“Recent report by the ADB highlighted that Southeast Asian countries require funding worth US$3.1 trillion for climate- adjusted infrastructure in the region by 2030,” he said.

Fraziali emphasised that there is a need to find a way to bridge the language and information gap between scientists, government and financiers.

“What science says about climate effects, what climate action the government is prioritising, what industries are providing and investing in — are quite incongruent at this point.

“While there is now a stronger demand for green financing, it is not matched by the supply side due to information gaps between financiers and green promoters,” he said.

Fraziali also acknowledged that financial institutions’ limited technical know-hows regarding the green sector may cause them to hesitate in providing funding or any form of protection or guarantees due to perceived risks.

At the same time, he noted that limited financial literacy among project sponsors, such as corporates and micro, small and medium enterprises, would also put them at a disadvantage in project evaluation.

“Many may also be unaware of the available financing instruments and suitable financing for their green ventures,” he said. 

Fraziali also emphasised the role of the financial sector, particularly that of the capital market, in driving Malaysia’s sustainable development through the sukuk market.

“We can certainly tap into the sukuk market to fund activities or technologies that support a low-carbon and climate resilient society,” he said. 

He added that the sukuk market, which is a high growth segment in Islamic finance, has an important role in supporting the growth of the green technology sector.

“Malaysia continues to be at the forefront of green sukuk, which is the preferred mode of investment for those that prefer investments with a positive environmental impact,” he said.

Source : The Edge