Sustainable & Responsible Finance

Managing E&S Risks in Financing Transactions​

We work closely with our clients to manage and mitigate their environmental and social risks and encourage them to shift towards more resilient and sustainable business models. Through sustainable and responsible financing practices, we are helping to protect our customers, business and the financial system as a whole. ​

Group Sustainable Financing Policy

The Group Sustainable Financing Policy (GSFP) governs the handling of environmental and social risks in non-retail financing and capital raising transactions. The GSFP enables CIMB to make informed decisions aligned to our values and aspiration to provide responsible and sustainable financial services.

Through the GSFP, the Group identifies, assesses, and manages risks arising from financing clients and sectors that have the most impact on, and are most vulnerable to, environmental and social risks.​

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Key elements of GSFP are: ​

• Exclusion List specifies the activities which the Group will not be associated with​.

• Sustainability Risk Assessment outlines how and when sustainability due diligence will be carried out for existing and potential clients​.

• High Sustainability Risk Sector List outlines the sectors identified as having high current or potential environmental and social risks. This list further outlines specific requirements to engage with clients from these sectors​.

• Escalations and Sustainability Action Plans. In instances where significant risks remain unaddressed, an action plan can be proposed to the client.  These action plans are diligently monitored and governed by specific conditions to ensure effectiveness and compliance​.

High Sustainability Risk Sectors

We take a structured and inclusive approach to establish our risk appetite and requirements for high sustainability risk sectors. We reference global and local standards and engage with internal and external stakeholders as part of the development of the risk appetite. We have identified over 140 sub-sectors within ten main industries that are classified as high sustainability risk sectors. These sub-sectors are regularly updated based on global frameworks. ​

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In addition, we have developed seven Sector Guides that cover palm oil, forestry, oil and gas, construction and infrastructure, coal, mining and quarrying, and manufacturing sectors. Clients are to meet required standards of the sector guide, avoid prohibited activities, and encouraged to adopt higher sustainability practices.​

Sustainability Due Diligence Process

Under the GSFP, sustainability risk in specific financing decisions is assessed and managed through a structured, risk-based due diligence process. In considering the risks arising from our financing exposure, we assess: ​

• Client Risk Assessment: The entity’s sustainability credentials, including policies, commitments, and track record.​

• Transaction Level Risk Assessment: The intended use of proceeds, and potential environmental and social impacts. ​

Basic Sustainability Due Diligence​

All companies that CIMB does business with are subjected to Basic Sustainability Due Diligence (BSDD) by the relationship managers. The purpose is to ensure that we are aware of any potential adverse environmental and social risks that a client is engaged in. 

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The BSDD encompasses basic checks on exposure to, and links with environmental and social risks or incidence in the past three years. This is done through a review of news reports and credible sources.​

Enhanced Sustainability Due Diligence​

The Group Sustainability team carries out Enhanced Sustainability Due Diligence (ESDD) on clients who fail the BSDD, operate in pre-selected high sustainability risk sectors, do not meet our Sector Guide requirements, or have been identified by reputable sources as being involved in negative environmental or social incidence.  ​

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The ESDD involves an internal analysis conducted by CIMB’s Sustainability team, supplemented by external subject matter expertise where necessary. Our ESDD framework is designed in accordance with internationally acknowledged best practices, as outlined in the UN Environment Programme Finance Initiative (UNEP FI) Environmental and Social Risk Analysis programme and considers the risk implications of large-scale projects.​

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The ESDD report can result in four potential outcomes: ​

• Recommend to Approve​

• Recommended with Action Plans​

• Not Recommended​

• Rejected​

Sector Case Study

Manufacturing

The manufacturing sector has been listed as one of our high sustainability risk sectors since July 2022. This sector includes the production and processing of carbon intensive products e.g., iron ore, cement and automotive, pulp and paper or rubber products, and other products e.g., chemicals, plastics and textiles etc.

Manufacturing firms that employ a large number of foreign or low-wage workers are increasingly scrutinized for their human rights practices. As part of CIMB's Human Rights Policy, such clients are required to establish:

• a human rights policy/commitment
• carry out human rights due diligence to identify and mitigate potential risks; and
• establish a grievance mechanism that ensures anonymity and prohibits retaliation.

We assessed 118 manufacturing clients in 2023, with 6 asked to commit to action plans to improve their human rights practices. Apart from our policy requirements, some action plans included implementing stronger governance to address human rights risks, and ensuring management commitments to zero recruitment fees are clear. Some clients have engaged external experts to scrutinise their recruitment processes involving foreign workers.

We plan to conduct targeted sectoral engagements to raise awareness among our manufacturing clients about human rights requirements and best practices for mitigating supply chain risk.

Power

In 2023, we announced our interim target for the Power sector, committing to a 38% reduction in emission intensity (kgCO2e/MWh) by 2030, from our 2022 baseline. With our decarbonisation pathway established for our own Power portfolio, we continue to engage with our clients to understand, support and facilitate their transition plans towards cleaner sources of energy.

In addition, we assess the E&S impacts of the Power sector, including renewable energy, at both the client and project levels as part of our ESDD process. Impacts assessed include deforestation, biodiversity loss, waste generation, pollution, involuntary resettlement, health and safety and human rights abuse. Following an ESDD, the client may be required to commit to time-bound action plans to mitigate any identified E&S impacts.

Of the 28 Power clients that were assessed, two cases were identified as having high E&S risks and were issued with action plans related to the development of an environmental management system for an effluent treatment and biogas facility and another on the development of a climate mitigation strategy.

We plan to develop a new Power Sector Guide and revise our Coal Sector Guide in line with our Net Zero pathways.

Agriculture

In the agriculture sector, we assess the E&S impacts that stem from our clients’ business activities, including deforestation, GHG emissions, water pollution, over exploitation of natural resources, health and safety, labour and land rights issues as well as physical and transitional climate risks such as flooding, water scarcity, changes in public policy and legal requirements. Where significant impact and/or risks are identified, mitigation efforts are required to be put in place through a mutually agreed time-bound action plan which is monitored and reviewed on an annual basis.

While we have specific sector requirements established for Palm Oil, Forestry and Rubber clients, with No Deforestation, No Peat and No Exploitation (NDPE) being a key requirement, we also conduct due diligence and engagement with other Agriculture clients, including those in the Livestock and Fisheries sectors.

In 2023, we assessed 267 cases from clients within the Agriculture sector, of which 213 were from Palm Oil, 27 from Forestry and Rubber, and 27 from Livestock and Fisheries. As a result of these assessments, we issued 22 new action plans covering issues such as NDPE commitment and implementation, Human Rights due diligence, grievance mechanisms and policies, as well as sustainability certification such as MSPO, ISPO and RSPO.

As part of our Net Zero target-setting process for the Palm Oil sector, we also engaged with multiple clients and industry associations within this sector, covering topics such as Net Zero and NDPE commitments, GHG emissions, Palm Oil Mill Effluent (POME), palm sustainability certification progress, and the traceability challenges they face in relation to smallholder suppliers, collection centres and third-party estates.

Moving forward, we plan to continue to expand and strengthen our various sector guide requirements in line with external stakeholders’ expectations and changes in legal requirements such as the European Union Deforestation Regulation.