Moreover, uncertainty over  1  See the Financial Stability Board (November 2020): The Implications of Climate Change for Financial Stability  1  these processes could undoubtedly have a profound impact on the financial sector in the medium to long run. In parallel with physical risks, the transition towards an environmentally sustainable economy entails a sweeping change in production technologies and a reallocation of activity across sectors and companies. Actually, such restructuring will mean that, in the short run, some sectors will increase their profits while others will incur losses, with obvious implications for the financial system and its stability. These changes in profits may come from the need to adapt towards greener ways of producing, owing to shifts in consumer and investor sentiment, from public regulation or taxation. In this case, for estimating transition risks, the most relevant factors are the carbon footprint and the environmental impact of the sectors and companies to which financial firms are exposed. The impact of climate change on inflation Beyond its effect on the financial sector, climate change could have a fairly direct impact on central banks’ ability to stabilise inflation. Policies aimed at promoting the transition towards a carbon-neutral economy – such as carbon taxes – are likely to affect the volatility of headline inflation, which includes energy prices. Most inflation-targeting central banks, including the ECB, target headline inflation, because it is more representative of the citizens' consumer basket than other notions of inflation.
More generally, economic distortions and loss of revenue caused by financial crimes can also threaten our growth prospects. While there are many issues that I could speak about on financial crimes today, I would like to focus on what has been at the top of many minds – cybercrimes. Indeed, cybercrimes are a global menace. McAfee reported that cybercrime cost the global economy more than 1 trillion dollars in 2020, or more than 1% of global GDP. Malaysia is not spared from this growing threat. As indicated in the National Risk Assessment 2020, fraud – which includes cybercrimes – is among the country’s top high-risk crimes, with a higher number of cases and losses suffered compared to the previous assessment conducted in 2017. More than 20,000 cybercrimes were reported in 2021 alone, involving losses of RM560 million. Between 2017 to July 2021, Malaysians suffered losses of about RM2.23 billion on account of cybercrimes. As more people switch to mobile phones for online transactions, we are also seeing an increase in online banking fraud incidents involving mobile malware. Although fraud losses remain low as a share of the total value of online banking transactions, they point to ever present and evolving threats as society adapts to new norms of living and doing business. Indeed, criminals are exploiting the rapid dispersion of technology in this recent period. This is not a trend that will reverse. Therefore, strengthening the financial system’s defence against emerging threats and vulnerabilities must remain a top priority.