Money Does Grow on Trees
More than half of what Malaysia’s commercial banks lend depends on nature. Why, then, does so little of that money ever reach it?
A study released in June 2026 by Bank Negara Malaysia, the World Bank and the United Nations Development Programme put the share at 54%, concentrated in sectors that need clean water and fertile soil. Savers are exposed too. The Employees Provident Fund (EPF) manages RM1.54 trillion and keeps 61% of it at home. Much of that sits in Malaysian securities, including stakes in the very banks whose lending the study has just mapped. A silted river upstream can thus surface, years later, as leaner retirement savings for millions of workers.
Coastal mangroves and upland forests should therefore trouble bankers and budget-makers no less than environmentalists. They are productive infrastructure. As ecosystems, they regulate water and bind the soil. They break storm surges and sustain the farms and supply chains downstream. When they degrade, the cost migrates from a ledger no one keeps into the loan books of banks and then onto the public purse.
In Budget 2027 nature remains a small line item. The Ecological Fiscal Transfer (EFT), which pays states to conserve, rises by 8% to RM270 million, its first increase in two years. The community-ranger programme, by contrast, slips to RM65 million from RM80 million a year earlier. That sum must pay some 2,500 Orang Asli, veterans and retired police personnel and keep their patrol posts standing.
These are useful commitments, yet road maintenance dwarfs them. Federal roads will absorb RM2.5 billion and state roads RM5.7 billion, more than twenty times what the two nature programmes receive together.
Roads command that money because they appear on a conventional balance sheet.
From conferences and a cottage industry of nature-finance reports comes a familiar prescription. Finance must acquire a conscience. That misreads what finance is for.
A credit committee exists to price risk. A pension trustee answers to its members. Neither can buy a forest out of goodwill. If protecting a catchment yields no dependable payment, how is its economic value, however immense, ever to become an investable asset?
Far from shunning nature-dependent industries, Malaysian banks should keep lending to the oil-palm growers of Sabah and the rice farmers of Kedah. The risk to those loans lies in the degrading ecosystems beneath them. A damaged catchment raises the cost of treating water and makes harvests less certain. It also worsens floods.
In 2025, floods caused RM636.9 million in recorded losses, and public assets and infrastructure absorbed RM380.2 million of it, nearly three-fifths of the total. When natural defences fail, the Treasury already bears the cost, usually after the event and as disaster relief.
Malaysia’s regulators have begun to grasp this vulnerability. The central bank has piloted nature-risk assessments with lenders and companies and, with the Securities Commission, is drafting a Malaysia Taxonomy that covers biodiversity. With deep sukuk markets and large pools of retirement money, Malaysia already has both the funds and the instruments.
Yet recognising a risk falls well short of financing its remedy. A bank exposed to a failing river catchment may lend on dearer, tighter terms or quietly withdraw from the district. Either response protects the bank and does nothing for the hillside.
Carbon finance shows what the missing ingredient is. It has run ahead because a tonne of carbon is easy to count and trade. A watershed is stubbornly local. Its worth depends on whoever lives and works downstream. Without an identifiable payer, there is no cash flow.
Public spending leans the same way, towards what is easy to count. Paddy farmers will receive RM2.62 billion next year for seed, fertiliser and other support. Another RM20 million will supply foliar fertiliser across more than 10,000 hectares to rehabilitate paddy soils.
The Ulu Muda watershed, which feeds a granary growing nearly 40% of Malaysia’s rice, receives scant recognition. A 2022 WWF-Malaysia review put its irrigation value alone at RM776 million a year. Farmers need their subsidies. Malaysia nonetheless pays for each year’s harvest far more readily than for the forests and rivers that make it possible.
The deeper problem is political. The Constitution leaves land and forests largely to the states. The bills for their degradation fall elsewhere, on the federal budget, water users, insurers and businesses.
Responsibility is just as scattered. Banks hold the loans, and the EPF holds the retirement funds. The ecological health of the upstream catchment appears on nobody’s scorecard. Every institution can behave rationally, and the national asset will run down all the same.
Budget 2027 offers the germ of a solution. It earmarks RM15 million from the palm-oil industry’s cess to conservation, including habitats for the Malayan tiger, Bornean elephant and orangutan. Although the sum is modest, the principle it establishes reaches much further. Those who profit from nature, or press hardest upon it, should help pay for its upkeep.
Malaysia should extend that principle in four directions. First, put environmentally sensitive areas, starting with priority catchments, on the public asset register, with maintenance budgets that survive the electoral cycle. Since no one demands that a highway prove itself bankable before it is repaired, the natural defences that shelter homes and businesses deserve the same presumption.
Second, EFT to states should reward results, paying out more against measured forest cover and water quality. Third, water tariffs should price in the cost of guarding the catchments that keep treatment bills low. Finally, where mangroves can be shown to cut coastal losses, insurers and takaful operators have every reason to help fund them through long-term contracts.
Each of these measures would generate a dependable stream of payments. Only with such streams can the EPF, the civil-service pension fund (KWAP), banks and sukuk investors supply patient capital at scale. The government’s task is to decide who pays and what each ringgit must buy.
Once that is decided, private capital will finally reach the catchments themselves. Money will then grow on trees after all.
Dr Hezri Adnan is a sustainability practitioner bridging public policy, markets and industry. He has served on the United Nations International Resource Panel from 2015-2018.
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