KUALA LUMPUR (Jan 13): Banks have shown progress in addressing climate change risks by setting climate change-related targets, according to CGS-CIMB.
In a note on Thursday (Jan 13), CGS-CIMB analyst Winson Ng said AMMB Holdings Bhd had hosted an inaugural Environmental, Social and Governance (ESG) Day on Wednesday (Jan 12) which reflected its commitment to enhance its ESG disclosure.
According to Ng, Bank Negara Malaysia (BNM) during the event disclosed that several financial institutions have started to set climate change-related target, such as net zero green house gas (GHG) emission by 2050, no new financing for new coal activities, increasing renewable energy financing and financing clients with net zero GHG emission.
“We are positive on the above as it showed that banks have started to formulate plans to address the risks from climate change, primarily for their operations and financing/investments.
“However, to further elevate their ESG standards, banks will have to provide investors more specific information relating to climate change such as percentages of their loans that would be negatively impacted by climate change and the size of potential risks from climate change, in our view,” the CGS-CIMB analyst said.
He added that BNM had also outlined a roadmap for banks for the next few years, via the introduction of new regulations, to improve their management of climate change risks, namely:
- Financial institutions to report exposures in line with Climate Change Principle-based Taxonomy (introduced by BNM) starting from July 2022.
- Financial institutions to set and monitor internal climate-related targets by December 2023 to reflect the consideration of climate-change risks in their business strategies and risk management.
- Mandatory adoption of annual climate-related disclosures by December 2024, in line with the recommendation by the Task Force on Climate-related Financial Disclosures.
- Industry-wide climate change stress testing exercise in 2024.
Meanwhile, Ng said that via the event AMMB shared the progress of its ESG adoption, noting that it had introduced its exclusion list for financing based on ESG criteria, and an environmental and social risk grading system for new non-retail credit applications.
“Going forward, we believe AMMB’s key ESG focus would be on (1) establishing a system to identify and track its climate change risks; (2) further improving its ESG disclosure, which would cover the percentage of loans exposed to sector with high ESG risks as well as exposures to and risks from climate change; and (3) increasing its sustainable lending,” he added.
However, Ng stated that AMMB is not his ESG pick among the Malaysian banks as it still lags behind some of its peers in terms of ESG disclosure, but noted that he is positive on its commitment to improve its ESG standards.
He maintained “add” on AMMB with an unchanged target price of RM3.64.
At 10.30am on Thursday, AMMB gained two sen or 0.58% to RM3.45, valuing the group at RM11.4 billion.