Financial regulators in Malaysia are being urged to introduce stronger and more binding rules for banks and investors to address deforestation risks, as current regulatory frameworks are not fully aligned with global biodiversity goals.
To continue reading, subscribe to Eco‑Business.
There's something for everyone. We offer a range of subscription plans.
- Access our stories and receive our Insights Weekly newsletter with the free EB Member plan.
- Unlock unlimited access to our content and archive with EB Circle.
- Publish your content with EB Premium.
A new report by Sahabat Alam Malaysia (SAM), produced in partnership with the Forests & Finance Coalition (FFC), found that Malaysia’s financial regulations are not yet fully aligned with the biodiversity targets set under the Kunming–Montreal Global Biodiversity Framework (GBF), which aims to halt and reverse nature loss by 2030.
The report reviewed key policies and guidelines issued by Bank Negara Malaysia and the Securities Commission Malaysia, including those related to climate risk management, sustainable finance and sustainability reporting.
Using a colour-coded assessment scale ranging from red (meaning there are no reference to GBF targets) to green (full alignment with the targets), the analysis found most regulatory documents fell within the yellow and orange categories. Yellow indicates that financial institutions are only expected to take relevant steps towards the biodiversity targets, while orange signifies that references exist but remain limited to voluntary recommendations.
In a press statement, veteran climate campaigner and president of SAM, Meenakshi Raman, highlighted the growing urgency of addressing biodiversity loss.
She said protecting Malaysian forests is essential for climate change mitigation, citing the latest business and biodiversity assessment released by the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES) on Feb 9, which warned that biodiversity decline will continue if current business practices remain unchanged.
“Forests act as carbon sinks by absorbing and storing significant amounts of carbon dioxide from the atmosphere. When forests are degraded or cleared, stored carbon is released, leading to increased greenhouse gas emissions and exacerbating global warming,” Meenakshi said.
She underscored the role of Indigenous peoples in forest stewardship and noted that their traditional knowledge and land management practices are also key to maintaining forest ecosystems and biodiversity.
“Malaysia is a forest-rich country with the second largest investment holdings of bonds and shares, amounting to US$6.9 billion or 64 per cent, in companies operating in the tropical forest-risk commodity sectors. In terms of credit, Malaysian banks rank seventh globally, having provided US$16.4 billion in loans and underwriting services to companies operating in forest-risk sectors between 2016 and June 2024,” she added.
These sectors include industries such as palm oil, logging, pulp and paper, and timber plantations.
Some of Malaysia’s largest banks have sought to address the climate impacts of deforestation through sectoral targets. For example, CIMB Group set science-based decarbonisation targets for the palm oil sector in 2023. Maybank also has emissions targets up to 2030 for the palm oil sector which includes measures to avoid harm to forests and peatlands.
Call for stronger rules
In its analysis, the report noted financial institutions’ significant influence over activities that may drive deforestation through their lending, investment and risk management decisions. As such, it said, financial regulators play a crucial role in setting the standards that govern these financial flows.
“While acknowledging the effort by financial regulators in trying to achieve an optimal balance between principle-based and rule-based regulation, the key question is for how much longer the financial industry will continue to be guided on deforestation matters through a gentle “principle-based” approach?” it questioned.
According to the report, voluntary responsible investment policies have led to uneven sustainability standards across Malaysian financial institutions, creating an uneven playing field and allowing companies to seek financing from banks with weaker environmental requirements.
Hence, the report calls on regulators to set a “a clear timeline for transitioning to mandatory, binding rules” to safeguard forests and community rights in the country.
Among its recommendations, the report urged financial institutions to strengthen commitments beyond No Deforestation, No Peat, No Exploitation (NDPE) standards and to respect the principle of free, prior and informed consent (FPIC) for Indigenous communities.
It also called for improved client transparency and credible grievance mechanisms.
For regulators, the report recommends moving decisively towards binding requirements with clear timelines, stronger enforcement mechanisms, penalties for non-compliance and meaningful participation from civil society in policy development.
Such measures, the report said, would help better protect forests and communities while positioning Malaysia as a leader in sustainable finance.
