Ladies and gentlemen, The second challenge is in forging strong collaboration and cooperation among key stakeholders and overcoming the collective action problem. When it comes to costly and difficult action, we always prefer others to do it. Ministries, government agencies, policymakers and regulators must therefore set aside their differences and work for the greater good, consolidate their strength based on their shared values and work collaboratively to develop and bring creative ideas for sustainable development into fruition. Initiatives need to be driven beyond personal motivation and belief. Strategies need clear milestones with clear accountability by stakeholders. Sector-specific approaches need to converge to limit risks of a disorderly transition. The journey of sustainability is therefore one that is best navigated collectively. We have to come together to support joint and coordinated responses to mitigate unsustainable practices. For the Malaysian financial sector, the formation of the Joint Committee on Climate Change was an important milestone in pursuing collaborative actions for building climate resilience. A key mandate of the Joint Committee is to facilitate collaboration between key stakeholders in advancing coordinated solutions to address arising challenges and issues. This is in addition to building industry capacity, and identifying issues, challenges and priorities facing the financial sector in managing the transition towards a low carbon economy. The third challenge that we face as a developing nation is in balancing sustainability and competing socio-economic priorities, given our limited resources for transition to low-carbon economy.
The risks to the banks, particularly credit risk, will diminish. But on the other hand, the risks will instead be assumed by the institutions and the general public which invests in these funds. In the event that the value of the funds decreases the investors will suffer. This may in turn affect their behaviour in the economy, for instance it may reduce their consumption and also the value of property. We have not yet seen any such situation so the outcome is unclear, but we should not neglect the risks. Another form of transferral of risks is taking place in the financial sector. Through the use of new instruments and structures it has become easier to transfer and redistribute risks. For instance, a bank may deem that it has too much exposure to one customer or to a sector. It could then divest itself of this risk through credit risk derivatives or by securitisation. The advantage from a financial stability view is that the risks become more widely dispersed between the various holders and that the individual bank can build a well-balanced portfolio. But at the same time a new risk has emanated – the risk that the new holder of the risk cannot fulfil his obligations. In the event that there is a credit default, the seller of the derivative to the bank may not have the necessary financial means. Or, there could be an unclear legal position about the risk transfer agreement.