WHILE financial institutions (FIs) are responsible for mobilizing capital for economic activities that are considered sustainable, it is important to strike a balance between environmental and social goals.
In addition to engaging regulators, industries and employees, FIs also work with clients to raise awareness of environmental, social and governance (ESG) best practices and find solutions to mitigate adverse ESG impacts.
Malay Banking Bhd (Maybank) takes a pragmatic approach to managing ESG risk that reflects the current time and stakeholder feedback.
“Maybank incorporates ESG considerations into all of its direct lending, debt, equity and advisory services through the group’s ESG policy, which includes specific criteria and requirements that cover, among other things, lending to high-risk ESG sectors,” said Maybank Group President and CEO Datuk Abdul Farid Alias.
Maybank will also focus on a more holistic suite of sustainable investment solutions, such as themed ESG funds, getting into the green mortgage space and expanding on existing green solutions.
At Maybank, a framework for sustainable products is being developed that, among other things, outlines the methodology and related processes that must be used to classify sustainable products and services as green, sustainable and transitional solutions.
As the market leader in home finance, Public Bank Bhd has made a significant contribution to home ownership, especially in the lower to middle income group. As of December 2020, residential properties priced between RM 100,000 and RM 500,000 accounted for 56.4% of the Group’s total number of approved home loans.
Small and medium-sized enterprise (SME) funding at Public Bank amounted to approximately RM 67 billion, accounting for about 20% of the group’s total domestic loans. The Group’s attractive financing terms for purchasing energy-efficient vehicles and solar modules have been well received by customers.
âThe latest updates to the Malaysian Corporate Governance Code 2021 have further raised the awareness and urgency of ESG among publicly traded companies. “Bank Negara’s publication of Climate Change and Principle Based Taxonomy (CCPT) and various proactive engagement sessions have also fueled the concerted efforts of the domestic banking industry to address the risks of climate change,” said Tan Sri Tay, Managing Director / CEO of Public Bank Ah Lek. (Picture below)
Public Bank Group also approved more than RM17 million to companies investing in green resources and technologies under the state’s green technology funding program.
CIMB Bank Bhd is establishing an internal framework to enable the identification and classification of ESG or climate-oriented economic activities or assets (e.g. renewable energy and affordable housing finance). This is based on the framework Green, Social, Sustainable Impact Products and Services (GSSIPS) and the CCPT published by Bank Negara.
“This internal framework will enable CIMB to holistically and purposefully monitor, convert and increase our exposure to these green, social and sustainable assets over the next few years,” said CIMB.
At the portfolio level, CIMB took the first step in 2020 to align its asset allocation with ESG considerations by introducing its target for a coal exit by 2040.
A solid sustainability due diligence review is carried out annually for existing financing commitments in order to continuously monitor and ensure that the negative effects caused are kept as low as possible. This is done by customers implementing time-bound action plans or best practices, for example to retrofit an existing production or power generation facility with new, environmentally friendly technologies.
By educating and raising awareness, FIs can play a key role in maximizing their positive impact on ESG; These can include savings accounts that channel a percentage of profits to support environmental projects, preferential rates for green homes and vehicles, and ESG investment products.
In 2020, CIMB Islamic Bank Bhd’s EcoSave Savings Account-I paid out a total of RM 2.2 million for environmental projects such as mangrove and forest protection in cooperation with non-governmental organizations.
RHB Bank Bhd plans to launch two more ESG funds by the end of 2021; The group has launched three sustainable and responsible investment funds with total assets under management of RM 812.2 million.
The five-year management of Bank Islam Malaysia Bhd includes a plan to expand and expand its syariah ESG investment and financing capacities. âThis means that we will double our green financing portfolio from our location and at the same time increase our syariah ESG funds to 12-15% by 2025, thus offering an overall Islamic solution,â said Mohamed Muazzam Mohamed, CEO of Bank Islam.
At Bank Islam, the value-based placement checklist for the preliminary financing assessment covers broad compliance with business activities in order not to fall under non-Syariah-compliant activities.
In terms of employment and equality, it includes equal opportunities, non-discriminatory employment, local first employment policy and employee turnover.
The financial sector is also a key driver of change to accelerate the transition to a low carbon economy. “It is important for financial institutions to allocate resources and develop new financial instruments that go beyond traditional financing to increase investments in support of Malaysia’s energy transition,” said OCBC Bank Malaysia Bhd Managing Director, Senior Banker Client Coverage and Head of Investment Banking, Tan Ai Chin ..
As Malaysia fights its way to control this pandemic health crisis, it must also bring about an economic recovery based on a gradual return to normal business activity in the various sectors.
“This presents a significant opportunity to leverage green and sustainable finance, not only to fund the recovery of Covid-19 but also to advance climate and adaptation goals,” Tan said.
HSBC Bank Malaysia Bhd is working with peers and industry bodies in Malaysia to help mobilize the financial system and take action against climate change.
“HSBC Amanah Malaysia Bhd is committed to transforming itself into a sustainable banking company, and the sustainability-related transactions already carried out by HSBC Amanah are part of the path towards this important goal,” said Stuart Milne, CEO of HSBC Malaysia.
HSBC Amanah has signed the first green trade finance facility for sustainable cocoa sourcing in Malaysia for Guan Chong Cocoa Manufacturer Sdn Bhd. It was the lead arranger for the first Asean Green Sustainable and Responsible Investment (SRI) Sukuk issue by Leader Energy Pte Ltd.
HSBC Amanah acted as the only sustainability structuring bank for Yinson Holdings BhdRM200mil sustainability related financing and launched an Islamic green trade finance offering by issuing a green bank guarantee for Cenergi SEA Sdn Bhd.
The path towards ESG and sustainability is clear and strong; As FIs play their role as catalysts for change, businesses and individuals need to recognize the urgency to move towards a better environment while meeting increasing consumer demands.
Yap Leng Kuen is a former StarBiz editor. The views expressed here are your own.