Malaysia’s economy depends heavily on nature, with ecosystems supporting agricultural productivity, water supply, soil stability, and the raw materials that have helped drive the country’s development. As one of the world’s megadiverse countries, Malaysia benefits from rich natural assets, but its financial system is only beginning to assess the risks that could emerge when these ecosystems are degraded.
The scale of exposure is significant. More than half of Malaysia’s GDP has a high or very high dependency on at least one ecosystem service. In the banking sector, 54% of commercial lending goes to sectors that are highly dependent on ecosystem services such as water provision, soil stability, pollination, and rainfall regulation.
The report also finds that 36% of loans finance activities that place significant pressure on ecosystems. Palm oil and construction are central to this exposure because they are both highly dependent on nature and among the sectors that contribute to environmental stress.
The risks are not only environmental but also economic and social. Construction supports around 1.3 million jobs, equal to 14% of total private-sector employment, while agriculture, including palm oil, accounts for another 502,000 jobs. Together, these two sectors support nearly 1.8 million workers.
When ecosystems degrade, companies may face higher costs, supply disruptions, and regulatory penalties. Policies such as the EU Deforestation Regulation could also affect market access for firms that cannot demonstrate sustainable practices, creating risks for jobs, exports, and business continuity.
For banks, these environmental pressures can become financial risks. Companies that depend on healthy ecosystems may become less able to repay loans if they face production losses, compliance costs, or exclusion from global value chains.
A new report by Bank Negara Malaysia, UNDP BIOFIN, and the World Bank argues that nature-risk assessment should be practical and proportionate rather than treated as an additional bureaucratic burden. The report finds that many financial institutions and companies already collect nature-related data through environmental impact assessments, sustainability certifications, and compliance reporting.
The main challenge is not necessarily producing new information, but connecting existing data across sustainability, operations, and finance teams. By using information already available, institutions can begin assessing nature-related risks in a more structured and useful way.
The report recommends starting with the largest exposures, building on existing climate-risk frameworks, and deepening assessments over time. This phased approach can help financial institutions identify risks without overwhelming firms with unnecessary reporting requirements.
Awareness of nature-related financial risks is growing in Malaysia. Nearly 80% of surveyed financial institutions are already identifying or intend to identify nature-related risks, but about 60% still report only a limited understanding of the issue.
Among surveyed firms, only 22% have conducted a formal nature-related risk assessment. This suggests that while momentum is building, more work is needed to translate awareness into practical risk management across Malaysia’s financial and corporate sectors.
The report highlights that protecting nature is also about protecting jobs, investment, and financial portfolios. By integrating nature-related risks into decision-making, Malaysia’s financial sector can help support long-term economic resilience while encouraging more sustainable business practices.
