Climate Risk & Strategy

Governance

CIMB's Group Board is ultimately responsible for all sustainability matters within the Group, including climate change. The Group Sustainability and Governance Committee advises on strategic sustainability matters, focusing on the climate change strategy. The Board Risk and Compliance Committee establishes climate risk appetite and management practices, the Audit Committee ensures internal control against climate risks, and the Group Nomination and Remuneration Committee assesses board-level climate competency.​

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Management-wise, the Group Transformation Committee (GTC) and Group Sustainability Council are key players. The GSC, led by the Group Chief Sustainability Officer (CSO) and featuring regional and cross-functional representatives, designs and oversees the Group's climate change strategy, goals, targets, and action plans. It also establishes portfolio and sector-specific targets aligned with the Group's commitments in the Net Zero Banking Alliance. On the other hand, the GTC, led by the Group Chief Executive Officer, ensures the timely and effective execution of the Forward23+ Sustainability Programme, which includes climate-related projects.​

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The Group Sustainability Division, led by the CSO, addresses scope 1 and 2 GHG emissions with frameworks, policies, and strategies, including internal carbon pricing. They also assist other units. The Group Administration and Property Management team works to reduce operational impacts and physical climate risks, collaborating with the Group Sustainability team to cut GHG emissions and improve resource efficiency. In 2022, the Climate Risk Unit was established under Group Risk as the second line of defense. It complements Group Sustainability by assessing climate-related risks from financing and investment activities.​

CIMB Group's commitment to sustainability, including climate change, is demonstrated by the fact that our CEO, top management, and all divisions have sustainability key performance indicators (KPIs). Sustainability-linked remuneration is an effective way of ensuring that our leadership, business units, and enabling functions remain focused on our sustainability goals. Summary of the KPIs for our CEO and top management as below:

Aligning Lobbying Activities with 1.5°C

We have committed to ensuring that all direct lobbying relevant to climate policy is consistent with our stated objectives in delivering the 1.5°C ambition of the Paris Agreement. Furthermore, we have long championed the importance of aligning indirect climate lobbying through industry groups, climate alliances and trade associations.

International Climate Advocacy

The annual United Nations Intergovernmental Climate Conference is always a critical moment to accelerate global climate commitments. We also attended the UNFCCC Conference of Parties (COP28) and shared CIMB’s climate journey and insights in various forums and Supported BNM and the Securities Commission Malaysia in profiling sustainable finance in Malaysia at COP28

As members of international and local working groups and our work with regulators and industry, we advocate for countries and companies to strengthen emission reduction plans to achieve Net Zero in line with the Paris Agreement and put in place enabling policy measures. We also actively engage with a range of Non-Governmental Organisations (NGOs) to both learn from and contribute to our collective sustainability journey.

We advocate for climate action by working closely with industry partners and regulatory bodies to encourage broader adoption and alignment to the ambitions of the Paris Agreement. These include:

CIMB Group Plays a Shaping Role in the Formulation of National Policies and Regulations

Shaping National Policies and Taxonomy’s for Malaysia’s banking sector with Financial Regulators and Industry Players 

The central bank of Malaysia (Bank Negara Malaysia or BNM) established a committee to mobilise collective action in Malaysia’s financial sector to promote climate mitigation and resilience in both the sector and the wider economy. This committee is called the Joint Committee on Climate Change (JC3).

The inputs, insights and recommendations arising from JC3 are used to shape sustainability policies and regulations set by financial authorities and regulators of Malaysia i.e. Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC). Examples of Climate policies in Malaysia include Climate Risk Management Scenario Analysis and the Climate Change Principles Taxonomy.

The JC3 is chaired by the financial authorities and regulators of Malaysia i.e. Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC) which regulates and develops the Malaysian capital market. CIMB co-chairs the JC3 Subcommittee’s Transition Risk Working Group (TRWG) and JC3 Subcommittee on Governance and Disclosure and is an active contributor to many other subcommittees and working groups. Our work in this committee directly influences the development of the regulators national policies and taxonomies.

Informing National Policies in Malaysia with Industry Players

In 2020 CIMB co-founded a coalition of leaders called the CEO Action Network (CAN) which is intended to shape policies, win stakeholders and create a favourable ecosystem for sustainable businesses and sustainable development in Malaysia. We are an active member of the CAN Steering Committee and Chair of the Working Group.

Malaysia’s government emphasises a ‘Whole of Society’ approach to address the climate emergency. CAN partners with Climate Governance Malaysia to drive a series of multi-ministerial engagements to arrive at policy recommendations and CAN members' commitments to support climate action. 

Roadmap to 2030​

We have a robust roadmap to reduce our Scope 1 and 2 emissions to net zero by 2030. Our all-encompassing approach has resulted in a four-pronged strategy designed to address current and long-term operational GHG emissions in an effective, responsible, and resilient manner. Our future capex will align to the following levers:

Our high-level pathway to net zero 2030 is shown in the diagram below. However, this is a forward-looking projection and we anticipate changes in the future based on advancements in technology, policy changes by the government, or new energy schemes in the market.

Short-Term Initiatives (2022 - 2025)

Our focus in the shorter term is on initiatives that yield quick energy-saving returns. Such initiatives include switching to energy-efficient LED lighting, incorporating motion sensors and phasing out old and inefficient single split unit cooling systems. A combination of lighting and cooling upgrades, together with electric vehicle charging, is planned for a selected group of branches pioneering sustainability at CIMB.

Medium-Term Initiatives (2025 - 2027)

Medium-term initiatives require greater expenditure but will yield greater savings. These include automated central monitoring systems, chiller replacements or connections to district cooling systems, and renewable energy systems. While we prefer onsite renewable energy systems, there are limited opportunities within our premises due to the need for sufficiently large roof spaces. We have started with a solar system at some of our headquarters, with plans to install solar photovoltaic (PV) systems for selected head offices and branches across the region.

Additionally, we will purchase Renewable Energy Certificates (RECs) progressively for each country. RECs are market-based instruments representing the rights to renewable electricity generation's environmental benefits. They are issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy resource. 

Long-Term Initiatives (Beyond 2027)

CIMB is exploring the purchase of green electricity via available market mechanisms such as the Virtual Power Purchase Agreement (VPPA). Such a mechanism enables organisations like ours to indirectly purchase renewable energy from renewable or solar power providers via the national energy grid on a long-term basis.

We envisage the purchase of high-quality carbon credits, tradable certificates or permits representing the right to emit a set amount of carbon dioxide to tackle our residual scope 1 GHG emissions. However, as the cost of carbon offsets is projected to increase in the coming years, these credits will only be purchased after all other options to reduce carbon emissions have been carried out.

Methodology​

We calculate and report our greenhouse gas (GHG) emissions in accordance with the Greenhouse Gas Protocol, a widely recognized international standard. We utilize the operational control approach, which means we account for 100% of the emissions from operations over which we have control.

The approach and methodology we use to calculate our GHG emissions are categorized into the three main scopes defined by the Greenhouse Gas Protocol:

Scope 1: Direct emissions from sources that we control, including:

• Emissions from on-site fuel combustion for electricity generation
• Fuel use in mobile combustion sources such as company vehicles and mobile generators
• Fugitive emissions from refrigerants used in air-conditioners are located within our operations

Scope 2: Indirect emissions from purchased electricity, heat, or steam that we use. We report both location-based and market-based methods for Scope 2 emissions.

• Location-based: Reflects the average emissions intensity of the power grid from which we purchase electricity
• Market-based: Accounts for the specific electricity sources (e.g., renewables) we purchase through green energy mechanism

General Calculation Methodology

We gather energy, fuel and refrigerant consumption data from electricity bills, fuel invoices, and facility management records.

We utilize recognized standard emission factors to convert energy consumption into CO2-equivalent emissions. These factors are sourced from reputable organizations like the Intergovernmental Panel on Climate Change (IPCC) or relevant national authorities.

Depending on data availability and accuracy, we employ a combination of top-down and bottom-up approaches for data collection.

Transparency and Improvement

We are committed to transparency in our reporting and continually strive to improve the accuracy and completeness of our GHG emissions calculations. We will periodically review and update our methodology as needed to reflect best practices and evolving industry standards.

Due to inherent limitations in data collection and estimation methodologies, our GHG emissions calculations may include a degree of uncertainty. We have established a materiality threshold of 5% for our GHG emissions inventory. If any emission source is identified that exceeds this threshold and was not previously accounted for, we will restate our GHG emissions for the affected period. We are committed to ongoing improvement in data quality and will strive to reduce these uncertainties over time.

Internal Carbon Price

As an economic incentive for business units and operating entities across the Group’s markets to reduce their emissions, we set up an Internal Carbon Price (ICP) framework in 2021 where operating entities and business units will be charged a penalty for every tonne of Scope 2 GHG emissions that is in excess of their divisional cap. The ICP was introduced at a country level in 2021. It has been rolled out at a divisional level in 2023.

The objectives of ICP include:

• To prepare for GHG regulations such as carbon taxes.
• To drive internal behavioural changes by putting an additional charge on carbon emissions.
• To include carbon costs into our own investments and upgrades, such that higher carbon investments would yield poorer returns.

Based on benchmarks and projections of prices of renewable energy certificates and carbon credits, as well as carbon taxes, the ICP has been set at RM70 per tonne for 2023. By 2030, we expect to ramp up ICP to between RM275 and RM355 per tonne. Proceeds will be reinvested into green capital expenditure to reduce Scope 1 and Scope 2 emissions or purchase RECs and carbon offsets as needed.

Scope 3 Operational Emissions

In addition to Scopes 1 and 2, we recognize the environmental impact extends beyond our direct operations. We take a comprehensive approach by calculating our Scope 3 emissions, which encompass the indirect emissions associated with our value chain. This includes:

• Category 1: Purchased Water Emissions - We account for the emissions associated with the extraction, treatment, and delivery of the water we use in our operations.
  
  
• Category 5: Waste Emissions - We consider the emissions generated throughout the lifecycle of the waste we produce, including disposal and potential recycling processes.
  
  
• Category 6: Business Travel - We estimate the emissions generated by employee air travel, car rentals, and other forms of business travel.
  
  
• Category 15: Financed Emissions - We assess the greenhouse gas emissions generated by the activities of the companies and projects we finance.
   

Category 15 is particularly important for banks like us as it allows us to understand the environmental impact of our lending and investment activities. As a Net Zero Banking Alliance (NZBA) member, we are dedicated to aligning our financing and investment portfolio with a 1.5-degree Celsius temperature rise limit by 2100. This requires reducing client emissions and achieving carbon neutrality in our portfolios. We’re actively developing strategies and making essential internal and client-focused changes in our climate change efforts. For more information on this, refer to our Climate Risk & Strategy section.

We are committed to continuously improving our understanding of our environmental impact. We will progressively include additional Scope 3 categories in the future to provide a more holistic view of our footprint and identify further opportunities for improvement across our entire business ecosystem.

Scope 3 Financed Emissions

Ensuring a just transition to a Net Zero future in Southeast Asia is imperative for achieving inclusive growth in the region's predominantly emerging economies. This journey involves addressing unique challenges, including reliance on primary and extractive industries, the entrenched use of fossil fuels in the energy mix, and the fragmented nature of agricultural production. A successful transition requires engaging companies and communities dependent on carbon-intensive activities, guiding them towards sustainable alternatives, or even fostering new businesses integral to the Net Zero economy. Only through such inclusive efforts can Southeast Asia realise a Net Zero future with equitable societal benefits.

We recognise the important role we play to enable and accelerate this process through the financing and investment decisions we make. As such, in line with our commitment to achieve Net Zero by 2050, we have developed sector-specific 2030 climate targets and accompanying transition plans for some of the most carbon-intensive sectors in our portfolio to manage our Scope 3 financed emissions.

In Sept 2022, we set our first round of 2030 climate targets for two sectors – thermal coal mining and cement – becoming the first Malaysian bank and second ASEAN bank to publish such concrete targets in alignment with globally recognised 1.5°C climate scenarios. We have since expanded the target-setting to our Palm Oil and Power portfolios, marking a significant milestone in our sustainability journey. Concurrently, we are developing targets for Oil & Gas and Real Estate, which are targeted for public release in 2024.

In setting our 2030 Targets, we are mitigating the climate risks in our portfolio and moving to establish our role in financing the activities that underpin the Net Zero economy of the future. More importantly, our plans to achieve our targets declare our clear intention to work closely with existing and new clients to develop, enable and accelerate their transition plans towards Net Zero. In supporting the success of our clients and their stakeholders, we are also securing ours.

Strategy

As a Net Zero Banking Alliance member, we aim to align our financing and investments with Net Zero by 2050, limiting the temperature increase to 1.5 degrees Celsius by 2100. This means reducing client emissions and achieving carbon neutrality in our portfolios. We're taking a calculated approach to addressing climate change, with significant work ahead to develop the right strategies and enact necessary changes, both internally and with our clients. For the full TCFD-aligned disclosure, refer to the Climate Change: Risks and Opportunities section of our Sustainability Report 2022.

Risk Management

We are guided by our Sustainability Risk Management Framework, which ensures that our approach to the assessment and management of sustainability risks is consistent with the Group’s Enterprise-wide Risk Management Framework.

Sustainability Risk, which includes climate-related Transition Risk and Physical Risk, is recognised both as a principal and a cross-cutting risk that can impact other risk categories such as credit risk, reputational risk, operational risk, market risk, as well as liquidity and funding risk. In light of this, we have initiated a review of the Group Risk Library to provide clarity to the interconnected nature of Sustainability Risk (including climate) as well as the roles and responsibilities of various parties in managing such risks across the organisation.

Assessing and managing our exposure to climate-related risks

We apply a multi-faceted approach to climate risk assessment, guided by the following principles:
 

• Embed Climate Risk Considerations
  Wherever possible, we embed climate risk considerations into an existing risk ecosystem, such as our Enterprise-wid Risk Management Framework, Group Risk Library, among others
  
  
• Take Risk-based Approach
  We take a risk-based approach to assessing and managing climate risks, focusing on areas that are most material to CIMB and the climate
  
  
• Deploy Quantitative Tools
  We use quantitative tools and contextualise climate risks using common risk and financial metrics, especially for scenario analysis and stress testing
  
  
• Constantly Strengthen Data
  We continually develop and strengthen the quality of climate data such as improving the availability and quality of our clients’ greenhouse gas emissions
  
  
• Synergise Top-down, Bottom-up Assessments
  We converge top-down portfolio-level assessment with bottom-up customer-level analysis to gain meaningful insights and enable more targeted actions