How to Mitigate Transition and Physical Risks in the Financial Sector

How to Mitigate Transition and Physical Risks in the Financial Sector

1. MOVING FORWARD WITH YOU
Proprietary to CIMB
4 July 2024
OJK and UNEPFI Webinar
Overview of climate-related financial disclosures
Luanne Sieh, Group Chief Sustainability Officer
CIMB Group

2. 2Proprietary to CIMB
Climate-Related Financial Disclosures enhances transparency
for stakeholders
Source: TCFD, IFRS
Industry Update
•TCFD was disbanded in October 2023 following the
achievement of its objectives
•The International Sustainability Standards Board
(ISSB) will take over responsibility for monitoring the
disclosures of organisations TCFD from 2024
onwards
•Companies that have adopted TCFD
recommendations can continue to use them as they
are aligned with the new ISSB standards (IFRS S1
and S2)
What are Climate-Related Financial Disclosures?
•Reporting of the financial impacts of climate change on an
organisation, including risks and opportunities
•Enhances transparency for stakeholders (e.g. regulators,
investors) on how companies are managing climate-related risks
Task Force on Climate-related Financial Disclosures (TCFD)
•The Financial Stability Board (FSB) created the TCFD in 2015 to
improve and increase reporting of climate-related financial
information
•The key elements of TCFD includes Governance, Strategy,
Risk Management, and Metrics and Targets

3. 3Proprietary to CIMB
TCFD Index – Overview of core elements and recommended
disclosures
Sample from CIMB Group’s Sustainability Report 2023

4. 4Proprietary to CIMB
Important to our
stakeholders,
including investors,
regulators,
customers and
employees
New market and
business
opportunities such
as transition finance
Financing is central
to facilitate
sustainable
development and a
just transition to a low
carbon economy
Simply the right
thing to do –
achieving a balance
between our people,
planet and profit
Our purpose is to
build a high
performing
sustainable
organisation to help
advance customers
and society
Protects enterprise
value - global financial
assets are at serious
risk of loss from climate
change
Catalyse and
encourage clients
towards responsible
business practices and
lifestyles
Our Values Our Business Our Influence Our Stakeholders
Why sustainability is important to us
We play a pivotal role as a financial institution to create and maximise net positive impact for our stakeholders

5. Proprietary to CIMB5
Our progress in the past year
Moving beyond commitments, towards impact
S&P Global Corporate Sustainability Assessment (for Dow Jones Sustainability Index) Top Quartile by 2024
No financing of new coal and to
exit coal by 2040; NDPE
commitments
Mobilise RM100 bil towards
sustainable finance by 2024
Maximise
Positive Impacts
Responsible Banking
Minimise
Harm
Achieve net zero operational
GHG emissions (Scope 1 & 2) by 2030
Achieve Net Zero GHG by 2050
Climate Change Social Impact
Invest RM150 mil from 2021 to 2025, and
100,000 hours annually in employee
volunteer activities by 2024 to
proactively impact lives, communities and
businesses
Be a Sustainability Leader in ASEAN
Achieved 88
th
percentile
Set interim climate targets and high-
level transition plans for Coal,
Cement, Palm Oil and Power sectors
Direct emissions reduced by 26% from
2019 in 2023
•Increased commitment from
RM60 bil to RM100 bil in
2023
•Mobilised close to RM86 bil
YTD since 2021
•Set target to halve thermal
coal mining exposure by
2030
•Rolled out NDPE policy
across all countries
•Disbursed RM32.9 mil CSR
investments in 2023
•203,245 employee volunteer hours
in 2023

6. Proprietary to CIMB6
Our sustainability roadmap
Pathway to achieving our vision
SOCIETY
Corporate Social
Responsibility
How we use a
portion of our
profits to enhance
and contribute
towards
sustainable long-
term positive
impacts in the
communities
around us
THE GROUP
Sustainable
Action
How we embed
sustainability
principles in all our
business
operations and
processes to
reduce our
negative impact
such as carbon
footprint and
generate positive
impacts through
our business
OUR CLIENTS
Sustainable Business - Risk
How we generate business profits in a
responsible manner, reducing our
sustainability risks, at the same time
assisting and encouraging our customers
and clients on their own sustainability
journeys
Sustainable Business - Opportunities
How we create net positive impact
through the products and services we
provide
How we govern and report sustainability
risks at CIMB, including setting targets and
tolerance levels, and how we organise and
mobilise ourselves for best results
How we champion, engage, build
capability and capacity, raise awareness
and drive participation for sustainability,
both internally and externally
GOVERNANCE AND RISK
STAKEHOLDER ENGAGEMENT
& ADVOCACY

7. Proprietary to CIMB7Proprietary to CIMB
Banks have a critical role to play, by influencing their clients
MINIMISING
HARM
Transaction Level
•Assess every new financing or capital raising request via
Basic or Enhanced Sustainability Due Diligence
•Conduct annual reviews of facilities, and monitor for any
ESG controversies
Client Level
Portfolio Level
•Review risks at the sector and portfolio level, and actively
manage portfolio exposure and emissions intensity to
align with our Net Zero 2050 goal
•Assess whether clients have effectively managed and
mitigated ESG risks
•Agree time-bound action plans with clients to improve
sustainability performance and to mitigate risk
MAXIMISING
POSITIVE IMPACT
Key Themes and Focus
How We Effect Change
Impact We Create
•Our focus is guided by the set of prioritised
SDGs that we have identified and integrated
into our strategy
•We effect change via our Products, Services
and Advocacy
•The impact we create is derived from how we
successfully enable, equip and incentivise
our clients
Green, Social and Sustainable Impact Product and
Services (GSSIPS)
Group Sustainable Financing Policy and Sector
Guides

8. Proprietary to CIMB8Proprietary to CIMB
Environmental and Social risks in business financing are mitigated
through our Group Sustainable Financing Policy (GSFP)
Scope and Coverage:
•Applicable to both financing and investment banking deals for CIMB’s clients
•Require sustainability due diligence to be undertaken on non-SME borrowers prior to final approval
•Group Sustainability supports
Business Units in an advisory
role and arrives at
recommendations on risk.
•The Group Executive
Committee (GEXCO) is chaired
by the GCEO, and members
include BU Heads and the
GCRO.
•All final approvals on high-
sustainability risk cases are
made by the GEXCO with
consideration of credit and
sustainability risk.
•Check of controversies
related to social and
environmental risk
•Data from a third-party
intelligence provider for
screening of clients
•Monitoring for ‘trigger
events’, issues arising
throughout the year
•Clients that failed BSDD and not
meeting sector
requirementsalways require ESDD
•Sector Guides describe minimum
requirements, encouraged
practices, and prohibited activities
•Multi-dimensional analysis based on
materiality of risks and
controversies
•Engagement with clients on risks
and time-bound action plans
•Recommendation
made by
Sustainability
•Approval by
relevant credit
authority
•High-sustainability
risk cases
escalated to
GEXCO and Board,
in the event of non-
concurrence
Basic Due Diligence (BSDD) Enhanced Due Diligence (ESDD) Approvals and Oversight
The due diligence process serves to engage clients on CIMB’s Group Sustainable Financing Policy
and allows us to encourage clients to adopt sustainable practices
Group Sustainable Financing Policy and Sector Guides

9. Proprietary to CIMB9Proprietary to CIMB
Key controls are instituted for sector-specific issues through Sector
Guides
Group Sustainable Financing Policy and Sector Guides
Palm Oil
Construction &
Infrastructure
Oil & Gas
Forestry
Coal
Sector Guides
Three categories have been defined to guide CIMB’s decision
making process:
•Expect – Minimum requirements that clients must meet to
have satisfied CIMB’s expectations in terms of environmental
and social practices.
•Encourage/Support – CIMB strongly encourages clients to
adopt these industry leading practices.
•Prohibit – CIMB prohibits financing to clients that are involved
in these activities (e.g. illegal activities)
Manufacturing
Mining &
Quarrying
Scan the QR codes below to view CIMB’s Sustainable Finance Framework and Human Rights Statement
CIMB
Sustainable
Finance
Framework
CIMB Human
Rights Policy
Group Sustainable Financing Policy and Sector Guides

10. Proprietary to CIMB10
Environmental
Risks
Social Risks
Biodiversity loss
Climate
change
Deforestation
High rates of
energy use
Water scarcity
Waste and
pollution
Marine
environment
Institutional
integrity
Human rights
and labour
Issues
Negative impacts on
communities
Health and
safety

Environmental and social risks assessed
Group Sustainable Financing Policy and Sector Guides
Group Sustainable Financing Policy and Sector Guides

11. Proprietary to CIMB11
Environmental
Company
Company
Environmental & Social Materiality
Consideration of environmental and
social risks that the company is
exposed to, and mitigation actions that
are being pursued.
Consideration of environmental and
social risks arising from the financed
activities including assessment of the
company’s sustainability commitments and
reputation.
Impact on
company
Impact arising
from companyImpact from company
can be financially
material
Financial Materiality
Environmental
Social Social
Double materiality perspective of sustainability risks
Group Sustainable Financing Policy and Sector Guides
Group Sustainable Financing Policy and Sector Guides

12. Proprietary to CIMB12
•SME in logging and
property investments
•Clearing and converting
forest land into oil palm
plantations for many years
About Client A
•Client A has not conducted
any High Conservation
Value (HCV) assessment
prior to land clearance,
which is mandatory for all
palm oil growers in
Malaysia
Business Impact
on the
Environment
•Reputational risk
(deforestation)
•Credit risk (MSPO is
mandatory for all Malaysian-
produced palm oil products)
Risk to CIMB

Example: Environmental and social materiality
Risk from environmental impacts caused by a client
Group Sustainable Financing Policy and Sector Guides
Group Sustainable Financing Policy and Sector Guides

13. Proprietary to CIMB13
•A medium-sized
manufacturing company
•The company has a history of
experiencing occasional
floods
About Client B
•A major flood event halted
production. Disruption in its
supply chain led to delays in
fulfilling orders, causing
reputational damage and loss
of key clients, resulting in a
significant loss of revenue
Environmental
Impact on the
Business
•Credit risk (Ability to meet
financial obligations –loan
repayment)
Risk to CIMB

Example: Financial materiality
Risk from impacts caused by environmental factors
Group Sustainable Financing Policy and Sector Guides
Group Sustainable Financing Policy and Sector Guides

14. Proprietary to CIMB14
Sample from CIMB Group’s Sustainability Report 2023Sample from CIMB Group’s Sustainability Report 2023

15. Proprietary to CIMB15
Sample from CIMB Group’s Sustainability Report 2023Sample from CIMB Group’s Sustainability Report 2023

16. Proprietary to CIMB16
Scope 1 emissions
Direct GHG emissions
from:
•Petrol and diesel for
transportation and
genset
•Refrigerant for air
conditioning
Scope 2 emissions
Indirect GHG
emissions associated
with the purchase
ofelectricity
Scope 3 emissions
Indirect emissions that occur inthevalue chain of the
company, butnotowned/controlled by organisation
CIMB is committed to carbon neutrality by 2030 (net zero GHG Scope 1
and 2 emissions in our operations) and overall Net Zero GHG by 2050
0.01%
(3 kt CO
2e)
0.28%
(74 kt CO
2e)
0.02%
(5 kt CO
2e)
99.69%
(26,314 kt CO
2e)
+
Category 1, 5 and 6
Purchased goods and services
(water consumption)
Waste generated and
disposed
Business travel
Category 15
Lending
Investments

17. Proprietary to CIMB17
We have now completed our 2030 climate target setting exercise
First ASEAN bank to join the Net-Zero
Banking Alliance (NZBA)
2021
First Malaysian bank and second in
ASEAN to announce targets for thermal
coal mining and cement sectors
2022
First bank globally to set target for palm
oil and first in Malaysia for power
2023
2024
Thermal
Coal Mining
Cement Agriculture
(Palm Oil)
Utilities
(Power)
Oil & GasReal Estate
Priority Sectors
Criticality for Net
Zero
Relevance to
ASEAN and to
CIMB
Readiness of key
decarbonisation
enablers
Availability of
methodology and
data
Our prioritisation
approach
First Malaysian bank to complete 2030 targets;
Elected to the NZBA Steering Group

18. Proprietary to CIMB18
We have set 2030 climate targets for sectors which cover 60% of our
total financed emissions and 47% of our portfolio
*
45.7%
0.3%
0.6%
0.3%
1.6%
7.1%
4.1%
37.5%
2.7%
28.5%
1.5%
1.7%
2.2%
3.8%
9.8%
12.4%
17.3%
22.8%
0% 10% 20% 30% 40% 50%
Rest of sectors
Thermal Coal Mining
Iron and Steel, Aluminium
Cement
Oil & Gas
Transport
Agriculture
Real Estate
Utilities
% of Financed Emissons % of Portfolio Exposure
*Group’s total financing and investment portfolios
Targets have been set
DeepDive
DeepDive
DeepDive •43% from retail mortgages
•57% from non-retail
•80% from retail hire purchase
•20% from non-retail

19. Proprietary to CIMB19
Coal Cement Palm Oil Power Oil & Gas Real Estate
Metric
% reduction of
portfolio exposure
tCO
2e / tCement tCO
2e / tCPO kgCO
2 / MWh tCO
2e/ MYR MM kgCO
2e/ m
2
Reference
Scenario
IEA NZE
(regionalised)
SBTi SDA
(Cement)
SBTi FLAG
(Palm Oil)
IEA NZE
(regionalised)
IEA NZE
(regionalised)
IEA APS (grid
trajectory) & CRREM
v2 (energy intensity)
50% 36% 16% 38% 16% 34%
Emissions
Scope
N/A – portfolio exposure
target
Scope 1 & 2
Scope 1 & 2
plantations and mills;
Scope 1, 2, 3
integrated companies
Scope 1 Scope 1, 2 and 3 Scope 1 & 2
Value-
Chain
Inclusion
Thermal coal mining
Cement manufacturing
incl. emissions from
raw materials and fuel
use
Planting incl. LUC
related emissions and
sequestration, and
Milling
Power generation
Integrated Oil & Gas
companies, pure-play
upstream E&P
companies
Developers, owner-
operators, REITs
across commercial
building types
Summary of CIMB’s 2030 Net Zero targets
0.0
0.5
1.0
1.5
2.0
0%
25%
50%
75%
100%
0.0
0.2
0.4
0.6
0.8
0
100
200
300
400
500
600
CIMB baseline CIMB progress 2030 target Reference pathway
0
100
200
300
400
500
600
700
0
20
40
60
80
100
120
New addition to Whitepaper v2.0
Baseline established - Progress to be reported from SR2024 onwardsOn track
0.64
63%
50%
100%
0.72
0.46
1.81 1.52
439
272
694 583
117
77
Targets Overview
Reduction from
baseline to 2030

20. Proprietary to CIMB20Proprietary to CIMB
Principles that served as guardrails for CIMB
across the target-setting process
Module 1: Net Zero Strategy
•CIMB as a responsible financial intermediary has the power to be the catalyst
for positive change and to proactively mitigate climate risk
•CIMB’s Net Zero by 2050 targets for its portfolio are aligned to keeping global
warming below 1.5°C, anchored on a science-based approach
•CIMB will periodically set interim targets, with the first in 2030, that give us
immediate accountability towards taking urgent action
•CIMB’s targets must achieve a just transition with equitable development, and
be consistent with other sustainability goals
•CIMB’s targets are designed to be inclusive, aiming to involve and engage
stakeholders while facilitating progress

21. Proprietary to CIMB21Proprietary to CIMB
Activities required for target settingSector-level emissions baseline and projections
tCO
2/sector unit, 2022–2050
Six-step approach to determine our Net Zero targets and steer the portfolio
towards Net Zero
Key methodological decisions
Scope of inclusion for target-setting (e.g., value chain, emissions scope
and emissions metric)
Baselining current emissions
Current emissions calculated at company-level
Aggregating emissions
Company-level emissions aggregated to sector portfolio-level
Projecting current emissions forward
Sector portfolio emissions are projected forward
Selecting a reference scenario
Reference scenario are used to develop in-going views on required
targets
1
Target setting (2030 & 2050)
Comparison of emissions gap allows production of green strategies
todrive baseline projections closer to targets
2022 2030 2040 2050
Reference Scenario Projected emissions
Current sector
portfolio
Individual company Aggregated portfolio emissions
4
3
TARGET
3
4
5
6
2
2
6
5
1. For example: “IEA Net Zero pathway for a sector implies an X% emissions reduction by 2050”
Iterative process to reach 6
1
1

22. Proprietary to CIMB22Proprietary to CIMB
Overview: Palm Oil is the most productive vegetable oil, requiring the lowest
land area for production
Statistics of vegetable oils: Global land areas for production and yield per hectare
Source: UN FAO STAT, MSPO, Oliver Wyman analysis
•Palm Oil is the world’s most productive vegetable oil – significantly less land is required compared to others
•Palm Oil is an efficient crop (high yield / hectare) with no natural substitutes available at scale. Demand for Palm Oil has tripled in the last 20 years, and
growth is continuing.
•Controversies arising from conventional Palm Oil have been primarily due to relatively recent deforestation and peatland clearance, which are detrimental to
climate change.
•Way forward for the industry is to support production of Certified Sustainable Palm Oil. National and international certification schemes (e.g. MSPO, ISPO,
RSPO) have been established to set standards, provide guidance, and verify the sustainable production of Palm Oil.
•Sustainable palm oil will be an important lever for decarbonisation, providing lower carbon alternatives for the broader food and fuel systems due to its high
calorific value and productivity.
•Nature - Deforestation is a significant GHG
emissions source, and has detrimental impact
on nature and biodiversity
•Economic and Social - Southeast Asia
produces >85% of the world’s Palm Oil and is
responsible for ~3-5% of the GDP of Indonesia
and Malaysia, employing 3 million smallholders
in both countries that accounts for >40% of
total palm oil production in the region
Palm oil illustration

23. Proprietary to CIMB23Proprietary to CIMB
Majority of emissions in the industry are from plantations and mills
•Land conversion
•Peat oxidation of palm
•Fertilizer use
•Field fuel use
•Methane from Palm Oil Mill Effluent (POME)
•Mill fuel consumption
•Refinery / plants fuel consumptionSource of emissions
~70-80%
Contribution to value
chain emissions ~20-30% ~<5%
Upstream: Plantations &
Smallholders
Midstream & Downstream: Refinery &
Processing
Plantations
Fresh Fruit
Bunches (FFB)
Palm oil mill Crude Palm Oil (CPO)
Palm Kernel (PK)Kernel Crushing
Plant (KCP)
Crude Palm
Kernel Oil
(CPKO)
Refinery Refined oils
Specialty fat plants
Biodiesel plants
Oleochemical facilities
Oil Palm Seeds
Palm Oil Mill Effluent
(POME)
Palm Fatty Acid
Distillate (PFAD)
Palm Kernel Fatty Acid
Distillate (PKFAD)
Facilities
Palm Oil Products
Residues / Waste
Legend:
Smallholders
Upstream: Mills
Source: Schmidt and De Rosa (2020) “Certified palm oil reduces GHG emissions compared to non-certified”
Palm oil illustration

24. Proprietary to CIMB24Proprietary to CIMB
Key design decisions(1/2)
Emissions Metric, Emission Scope, Value Chain
Emissions Metric
What is the right emissions metric?
Emissions Scope
Across Scope 1-3, which emissions scope should
be included?
Value Chain Inclusion
Which part of the value chain should be included?
•Physical emissions intensity, measured in tonnes of CO
2 per tonne of Crude Palm
Oil (tCO
2e/tCPO)
•Tracks the progress of the Palm Oil sector in meeting its climate change goals, while
continuing to meet growing demand
•Support palm oil producers to produce at a lower carbon intensity
•Scope 1 and Scope 2 emissions from plantation and milling clients in our portfolio
which includes direct emissions from their activities across the value chain
•Scope 3 upstream emissions of integrated palm oil companies from the sourcing of
CPO from independent suppliers.
•Covers the entire value chain which comprises Plantations and Smallholders, and
Mills (Upstream), Refinery and Processing (Midstream and Downstream)
•Our target focuses on clients who operate in the plantation and mills segment as
it is responsible for ~95% of gross GHG emissions associated with palm oil
1
2
3
Palm oil illustration

25. Proprietary to CIMB25Proprietary to CIMB
Key design decisions (2/2)
Baseline Calculation and Reference Scenario
Emissions Baseline
Calculation Approach
What is the methodology for emissions baseline
calculation?
Reference Scenarios Option
Which reference scenarios are available for the
sector?
•Physical emissions intensity = dividing the sum of financed emission over the
sum of Crude Palm Oil
∑
Financed
Emissions
Total
Attributed
Activity
CIMB
Financing
×Enterprise Value
including Cash
∑
=
∑
Company
Emissions
CIMB
Financing
Enterprise Value
including Cash
∑
×
Company
Production
•Our reference scenarios are based on the Science-Based Targets Initiatives (SBTi)
Forests, Land and Agriculture (FLAG) emission intensity pathway specific to palm oil
commodity
•To account for the treatment and discharge of Palm Oil Mill Effluent (POME) in palm oil
mills that is not currently included in the SBTi FLAG pathway, we have scaled up the
SBTi FLAG pathway for palm oil with emissions intensity associated with POME
4
5
Palm oil illustration

26. Proprietary to CIMB26Proprietary to CIMB
Our 2030 Net Zero Target for the Palm Oil Sector
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2022 2025 2030 2035 2040 2045 2050
CIMB Baseline
Reference Pathway - SBTi (POME Same Trajectory)
2030 Target
Emissions Intensity
(tCO
2
e/tCPO)
1.81 tCO
2e/tCPO
1.52 tCO
2e/tCPO
-16% reduction
Palm Oil Sector Net Zero Target
2022-2050
Metric
(y-axis)
Physical emissions intensity
tCO
2e / tCPO
Reference
Scenario
SBTi FLAG
(Palm Oil)
Reference
Baseline
2.12
CIMB
Baseline
1.81
2030 Target 1.52 (16% reduction)
Emissions
Scope
Scope 1 & 2 for plantations and
mills; Scope 1, 2, 3 for integrated
companies
Value-Chain
Inclusion
Planting (incl. LUC related emissions
and sequestration) and Milling
Palm oil illustration

27. Proprietary to CIMB27Proprietary to CIMB
We are committed to support the Palm Oil sector’s transition towards a
decarbonised future
Our Strategy
Dependencies
NDPE Policy
Client Engagement
Increased Financing and
Collaboration
1
2
3
•Strict adherence to our NDPE policy (rolled out in 2022) where we require clients with new plantation to
conduct HCV assessment and commit to conservation of primary forests and HCV areas (including
peat) prior to land clearing
•Facilitate clients in their pursuit of sustainable palm oil certifications such as MSPO, ISPO, RSPO
and ISCC
•Support clients to report emissions data to estimate more precisely our financed emissions intensity
•Increase financing and collaborate with clients to help improve traceability and yields, and
accelerate adoption of sustainable practices in their supply chain, particularly among smallholders
•Financing of biogas plant installation and other sustainable uses of palm oil agricultural waste
such as manufacture of sustainable fuels and fertilizer
Implementation of industry policies
and standards
Emissions reductions are dependent
on the implementation of policies and
standards (e.g. MSPO, ISPO, EUDR)
Adoption of sustainable practices by
smallholders
With > 3 mil smallholders, the palm oil
ecosystem stakeholders are key to
deliver social benefits to this group
Improved reporting for CSPO
production
A harmonised standard for consistent
company reporting methodologies, to
accelerate CSPO production
Palm oil illustration

28. Proprietary to CIMB28Proprietary to CIMB
Sample from CIMB Group’s Sustainability Report 2023

29. Proprietary to CIMB
[#]
29Proprietary to CIMB
[email protected]
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