This article first appeared in The Edge Financial Daily on January 6, 2020

KUALA LUMPUR: CIMB Group has allocated RM3 billion for its recently launched sustainability-linked loans (SLLs) for corporate borrowers keen to enhance their sustainability performance in alignment with any of the 17 United Nations sustainable development goals (SDGs).

CIMB said SLLs are a type of financing instrument and contingent facility where the borrower receives financial incentives upon achieving pre-agreed sustainability performance targets (SPTs).

“Incentives are offered, in the form of interest rate rebates, if the borrower is able to demonstrate that it has achieved its SPTs,” the group said in a statement. “SLLs assist and encourage borrowers to improve their sustainability profile or commitment as the financing terms and conditions are aligned to their SPTs.”

The SLL incentive is available from Jan 1, 2020 to Dec 31, 2024, the bank said.

The use of proceeds in SLLs are not necessarily limited to green projects, but can also be for general corporate purposes, it added.

CIMB group chief executive officer Tengku Datuk Seri Zafrul Aziz said CIMB has introduced several new initiatives in the past year to intensify sustainability awareness and action with propositions that can create real, lasting impact environmentally, economically and socially.

“The SLLs have been introduced from our active engagement with our clients to encourage them to embark on and further their own sustainability journeys.

“The SLLs are a catalyst to urge businesses to embed EES (environment, economic and social) considerations in their strategies in order to operate responsibly for the long-term well-being and sustainability of our environment and communities,” he said.

Tengku Zafrul said SDGs and indicators can be adjusted to be in line with CIMB’s clients’ sustainability strategies and used as a guidance in the setting of SPTs.

“By working together with clients, the SLLs would be a start for CIMB to assist them to understand their environment, economic and social risks and opportunities and encourage them to address those risks and leverage the opportunities,” he said.

The statement said the SDGs which may be relevant to corporate borrowers include quality education; gender equality; industry, innovation and infrastructure; or even responsible consumption and production.

It added that the identification of suitable SPTs and their measurements could be guided by external consultants, external sustainability indices, borrowers’ internal measurement by their own established sustainability team or from CIMB Group’s Sustainability Department.

CIMB said the SLLs by CIMB are guided by the Sustainability Linked Loan Principles 2019 issued by the Asia Pacific Loan Market Association that advocate best market standards and practices.

“The principles set out a broad voluntary framework of characteristics based on four core components, which consist of relationship to borrower’s overall sustainability strategy, target setting, reporting and review,” it added.