Advancing Sustainability Standards in ESG Financing: Lessons from CIMB Malaysia and Amret's Experience with Global Frameworks

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On the 13th of July 2023, the Ceylon Chamber of Commerce hosted a webinar on understanding sustainability standards for Environmental, Social, and Governance (ESG) financing for financial institutions. The event drew on the experiences of two entities: CIMB Group Berhad, with its focus on United Nations Environment Programme Finance Initiative’s Principles for Responsible Banking (UNEP PRB) and the NetZero Banking Alliance (NZBA), and Amret Cambodia, which has made strides with the Cerise+Social Performance Task Force (SPTF) certification. This article offers an extensive exploration of the insights shared during the webinar, aiming to provoke thoughtful conversation around the subject.

The Journey of CIMB Group Towards Responsible Banking and NetZero Alliance

CIMB Group began its transition towards sustainable finance and ESG financing in 2018 when these concepts were not widely discussed in Malaysia. A crucial aspect of their journey involved the development of a two-fold approach to green their loan book and mitigate risks in lending and investments. Initial efforts concentrated on minimizing harm and reducing brown emissions in the loan book, which was achieved by implementing a robust sustainable financing policy. This policy involved an elaborate screening process led by frontline relationship managers and further investigations conducted by the group sustainability team for those that didn’t meet the initial screening criteria. Based on these findings, they could ascertain whether risks were adequately managed and aligned with sector policies. CIMB also established and annually monitored action plans for clients, refusing finance when the risks were deemed too high. This risk management strategy led CIMB to become the first emerging market bank globally to establish a coal policy, with a goal to completely exit coal by 2040 in line with the Paris Agreement goals.

This rigorous process also supported CIMB’s commitment to the United Nations Environment Programme Finance Initiative (UNEP-FI), providing an opportunity to work with 30 other banks to draft the Principles for Responsible Banking (PRB). The supportive network within the UNEP-FI helped address fundamental questions about implementing sustainable finance initiatives.

CIMB faced challenges in committing to the two focus areas stipulated by PRB: climate change and financial inclusion. Given CIMB’s client profile in browner and Agri industries, and a presence in countries with large underbanked populations, these two areas were seen as having the most potential for positive impact. CIMB overcame initial hurdles and made significant progress in addressing climate change, aided by their participation in the Collective Commitment to Climate Action (CCCA) and the NetZero Banking Alliance (NZBA), which committed them to the Paris Agreement’s 1.5-degree goal. The guidelines and resources provided, helped CIMB make advancements in their efforts, despite the strict criteria of the commitments.

To align with UNEP’s framework and the NetZero targets, CIMB set various specific goals related to environmental and social sustainability. They included targets for vendor sustainability, improving gender diversity in management, and implementing sustainability training programs for financial inclusion. Their focus was not just on granting access to finance but also on enhancing financial literacy, securing the future financial well-being of individuals.

To measure performance and goals, CIMB implemented a comprehensive scorecard for each material issue. Despite the challenges posed by climate-related measurements, CIMB made significant progress. They used the Partnership for Carbon Accounting Financials (PCAF) tool to collect data from a wide range of clients, including large corporations, SMEs, and individual mortgages and loans.

Amret and the Cerise+SPTF Certification Journey

Amret, on the other hand, shared their experience with the Cerise+SPTF certification, which highlighted best practices in customer protection, including policies, practices, and investments in staff training. This certification has improved relationships with investors, shareholders, and regulators, offering Amret a competitive edge.

Amret demonstrated a strong commitment to prevent customer over-indebtedness and promote fair lending practices. This commitment led to Amret being the first institution to achieve gold standard certification with the Client Protection (CP) Pathway. The certification process involved implementing three levels of recognition (gold, silver, and bronze), conducting self-assessment using Cerise+SPTF indicators to identify gaps, and ensuring efficient coordination between Amret and auditors, along with stakeholder engagement from the outset. Strong commitment from boards and management, coupled with close monitoring of progress, aids in overcoming challenges throughout the certification process.

The Collaborative Effort: Stakeholders, Clients, Regulators, and Investors

Collaboration was a recurring theme throughout the webinar. CIMB emphasized the need for active engagement and education of employees, customers, and regulators on the Principles for Responsible Banking (PRB) and NetZero Banking Alliance (NZBA) initiatives. They established a sustainability academy and internal training programs, engaging customers through annual conferences and working closely with regulators to create policies.

Meanwhile, the speakers advocated for Sri Lankan financial institutions to collaborate with all stakeholders, including customers, regulators, and investors, in adopting these standards. The Sri Lanka Banks Association, supported by the Ceylon Chamber, was highlighted as the primary vehicle for such collaboration. Training programs and technical awareness initiatives were suggested to enhance expertise and seriousness in addressing sustainability concerns. It is also imperative for banks to assess their readiness, maturity, boardroom priority, executive leadership skills, and staff motivation in embarking on this journey.

Challenges and Innovations in ESG Financing

Throughout the webinar, the challenge of transparency was recognized as a significant issue in ESG financing. The historical lack of standardized accounting processes across different industries complicates comparisons. However, it was emphasized that regulators and central banks are increasingly involved in these topics, focusing on risk perspectives rather than in-depth analysis.

The discussion also shed light on innovative financing opportunities, highlighting the popularity of sustainability-linked finance instruments. These instruments provide financial incentives for clients to meet sustainability Key Performance Indicators (KPIs), thereby promoting sustainability efforts. CIMB, for example, has a treasury program where clients involved in foreign exchange trading can receive financial benefits if they meet the set sustainability KPIs.

In conclusion, the webinar on understanding sustainability standards for ESG financing offered a wealth of insights from the experiences of CIMB and Amret. It highlighted the opportunities and challenges in sustainable finance, emphasizing the importance of collaboration, education, innovation, and commitment to sustainability standards. As the conversation around sustainable finance continues to evolve, these insights will undoubtedly play a vital role in shaping future initiatives and strategies in the realm of ESG financing.

By Sanjaya Ariyawansa
Economist 
The Ceylon Chamber of Commerce

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