Beyond experimentation, such exploration may also require testing of use cases in the market to assess their technical functionality and commercial viability in a production environment. To this end, regulatory sandboxes have come in useful over the past few years. Tailored relaxation of regulatory requirements within well-defined parameters has allowed opportunities afforded by new technologies to be explored, while maintaining the overall soundness of the financial system. But central banks’ role in innovation goes further than this. . Moving on to my second point; beyond embracing and facilitating innovation; central banks can play an important role in leading innovation, by being at the centre of experimentation. 7  The private sector is good at leading innovation, subject to the return on investment providing a clear incentive. When this is the case, they do an excellent job. They drive applied research, apply technology in an agile fashion, and deploy solutions to markets quickly. However, private sector firms are less incentivised to innovate in cases where the return on investment is unclear and the benefits may not accrue primarily to them. 2/5  BIS central bankers' speeches  Hence, when there is a need for innovation to develop essential industry infrastructures that benefit the entire financial system, central banks can step in to provide these public goods. We are able to leverage our unique position in the ecosystem to drive collaboration within the local financial sector community, and act as bridges to facilitate collaboration across borders.
Additionally, coastal erosion will directly impact tourism in places such as Kota Kinabalu and manufacturing in industrial zones such as Kota Bharu, Kuala Terengganu and Mersing. If this trend continues, our mangroves would completely sink by 2040 and industrial zones will be affected by 2060. Our ports, the lifeblood of international trade linkages, will also struggle to cope with rising sea levels. A recent study estimates that pre-emptively adapting Port Klang and Tanjung Pelepas for climatic conditions expected in 2070 will cost nearly RM3 billion. Naturally, this cost would be far greater if not planned for in advance. The effects of climate change are real. They are already upon us; and make no mistake, they will intensify. For this reason, financial institutions can no longer be passive about climate change and its effects. There is a clear economic case for building resilience to climate change: it directly affects our balance sheets, and can pose a broader risk to financial stability from significant and prolonged climate-related events. So far, I have explained the direct, physical risk posed by climate change to the economy and financial industry. However, it is not only the climate that is changing. The changing behaviours of economic agents also give rise to significant transitioning risks. As the world becomes increasingly concerned with reducing the global carbon footprint, governments, businesses and consumers are pushing for a transition to a more sustainable, greener economy.