Regulating Finance for Forests and Community Rights in Malaysia

This blog was originally published by SAM

Sahabat Alam Malaysia (SAM), in partnership with the Forests & Finance Coalition (FFC), has commissioned an analysis of Malaysian financial regulatory documents to evaluate compliance with Targets 1 and 15 of the 2030 Global Biodiversity Framework (GBF). Protecting Malaysian forests is essential not only for biodiversity but also for climate change, given that forests play a critical role as carbon sinks in absorbing and storing carbon dioxide from the atmosphere. In this context, the rights of indigenous peoples are especially important as long-standing stewards of the land. Financial institutions, through their lending and investment practices, have an important and direct influence on the state of play. 

This report reviews key guidelines and policies published by Bank Negara Malaysia and the Securities Commission, guided by the FFC’s policy assessment methodology and regulations assessment framework to assess how well the regulatory environment for the financial sector is aligned with the 2030 targets of the GBF. 

The report reveals that Malaysia’s financial regulatory sector is not yet fully aligned with the GBF’s 2030 targets and highlights areas where further alignment could be considered. On a color-coded scale ,from red (no reference to GBF targets) to green (full alignment with GBF targets), most regulatory documents score yellow, indicating that financial institutions are only expected to take relevant steps towards the GBF targets, or orange, meaning references to the GBF targets are present but limited to voluntary recommendations.

The report concludes with recommendations to transition to a more rules-based approach to regulation, with concrete suggestions on strengthening due diligence, comprehensive reporting, putting in place grievance mechanisms, and finally, strong enforcement of sanctions. Specific to the National Sustainability Reporting Framework (2024), there is a need to go beyond the Taskforce on Nature-related Financial Disclosures (TNFD), an international framework that provides guidance on assessing and reporting nature-related risks to ensure greater transparency in disclosing forest and community risks and impacts, and stronger governance around management and accountability. Last, the report also calls for civil society organisations (CSOs) to play a stronger role in strengthening public oversight on forest protection and safeguarding the rights of indigenous peoples.

This report was officially launched through a webinar SAM organised. You can watch it here.