Malaysian banks’ lending to coal sector under scrutiny

This article first appeared in The Edge Malaysia Weekly, on March 2, 2020 - March 08, 2020.
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INCREASINGLY, global banks, the latest being JPMorgan Chase, are pulling back from lending to the coal sector because of the climate-related and reputational risks associated with the industry.

Despite this global trend, three of the largest banks in Malaysia remain “heavily invested”, according to Market Forces, an Australia-based  climate activist group that scrutinises financial institutions.

In a report last month, it said its research showed that CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank) and RHB Bank Bhd provided US$4.9 billion (RM20.6 billion) via loans and bonds to the coal sector between 2010 and 2019.

Market Forces described CIMB as the worst offender, as it poured about US$2.7 billion into the coal sector in the 10-year period, while Maybank invested nearly US$1.8 billion and RHB Bank, US$435 million. (It obtained these figures by consulting a database of over 28,000 transactions compiled by IJGlobal, an energy and infrastructure finance data service.)

By continuing to invest in coal when other financial institutions are abandoning it, Malaysian banks are at risk of being left to prop up a dying industry, it said.

“As major financial institutions rush to withdraw from coal across Asia, concerned about the financial risks of exposure to coal, Malaysian banks appear to be catching a falling knife,” Market Forces’ legal analyst Bernadette Maheandiran said in an updated press release on Feb 20.

The group claims that this coal financing shows little sign of abating, as CIMB and Maybank are considering funding the controversial 2,000mw Jawa 9 and 10 coal-fired power project in Indonesia. Several groups, including Greenpeace and 350.org in Indonesia, wrote to CIMB last month urging the bank not to support the project. The letter was sighted by The Edge.

Both CIMB and Maybank declined to comment on that project. Banks typically do not comment about their financing to potential or current clients.

Other banks, such as Standard Chartered, reportedly stepped away from that potential deal in Indonesia.

 

What they say

A check of the three banks by The Edge reveals that they do have plans to ease up on coal financing, having started efforts in recent years to integrate environmental, social and governance (ESG) considerations in their decision-making.

They are, like many other banks, however, adopting a “phased” approach. This may not sit well with critics who feel that lenders should be acting faster to put an end to polluting energy sources while facilitating a more rapid transition to renewable energy.

In an email response, a Maybank spokesperson tells The Edge: “We are aware that there will be environmental impact from the power sector as a whole, and we need to agree how it can be operated sustainably. We also know that power generation using coal makes up some one-third of energy output in the Asean region. However, putting an immediate stop to coal financing would have severe economic and social impact [on] economies and society, and to do this without a feasible alternative would be an irresponsible act on our part.

“Recognising that what we currently have is a delicate scenario, we are working very hard on finding the right balance to assist the relevant economies on their journeys to reduce their dependency on non-renewable energy sources [and turn] to renewable ones.”

Maybank is the largest bank by assets at home, and the fourth-largest in Asean. Its exposure to coal financing made up 0.2% of its total financing portfolio as at Dec 31, 2019 — reduced by half over the previous year.

“Concurrent with this, we have stepped up our financing of renewable energy facilities, which has grown by 28% from 2018 to 2019, and [made] up close to 0.5% of our total financing portfolio as at Dec 31, 2019,” according to the spokesperson.

Maybank is also engaging all its clients to ensure that they progressively transition into adopting sustainable practices in all areas of operations.

“We do recognise that our clients are at different stages of this process and are operating in countries that have different stages of development. Thus, we remain steadfast in our commitment to accompany our clients on this important journey to collectively ensure a sustainable future for all,” the spokesperson says.

Meanwhile, CIMB, the fifth-largest bank in Asean, says it started its sustainability journey only in late 2018 and rolled out its sustainable financing policy in mid-2019. The policy is embedded in its five-year strategic plan, which runs until 2023.

“In 2019, CIMB began implementing financing policies that consider the ESG impacts of all potential clients and avoid financing of egregious environmental and human rights violators. As part of our commitment to continually improve and ramp up our positive impact, we plan to actively conduct risk assessments of our financing portfolio, including the supply-chain risks we are indirectly exposed to, from 2020. Sector-specific policies will be rolled out progressively,” a spokesperson says via email.

The spokesperson says the group’s efforts last year included setting up a dedicated sustainability team, as well as establishing board-level oversight over sustainability issues, and a Group Sustainability Council that provides top-level management oversight of sustainability risk and business strategies.

As for renewable energy, the spokesperson says CIMB has either financed or arranged financing for several projects in the past. Some examples are Quantum Solar’s RM1 billion sustainable and responsible investment sukuk for three 50mw alternating current solar photovoltaic power plants; RM13.8 million Islamic term financing facilities to fund the construction of two 1mw biogas-to-power facilities; and about THB450 million (RM59.9 million) in renewable energy financing in Thailand.

In Malaysia, CIMB launched a renewable energy financing package for smaller companies last October. And, last month, it allocated RM3 billion for sustainability-linked loans.

“We are actively engaging all stakeholders, including customers, staff and suppliers, to be part of our sustainability journey,” the spokesperson says.

Last September, in an interview with The Edge, group CEO Tengku Datuk Seri Zafrul Aziz said CIMB’s sustainable financing efforts would start in Malaysia and then Indonesia — its two biggest markets — before eventually encompassing its other Asean markets. The bank says that, as at end-2019, its exposure to coal was about 1% of its financing portfolio.

Interestingly, last year, CIMB became one of the founding signatories of the Principles for Responsible Banking, committing to strategically align its business with the United Nation’s (UN) sustainable development goals and the Paris Agreement on Climate Change.

A spokesperson for RHB Bank, the fourth-largest local bank, says: “We have institutionalised our approach towards sustainability, and will take a phased approach in integrating ESG considerations into our decision-making and risk management practices. We will continue to engage with our clients in advocating good sustainable business practices.”

Last September, Bank Negara Malaysia reminded banks that they could no longer be passive about climate change and its effects. To push things along, governor Datuk Nor Shamsiah Mohd Yunus said the central bank would start requiring financial institutions to report their exposures to climate risk.

 

What other banks are doing

Last Tuesday, at its annual investor day, US-based JPMorgan announced that it would place restrictions on financing new coal-fired power plants, phase out credit exposure to the industry by 2024, and step back from advising companies that derive most of their revenue from coal extraction. It will also stop funding new oil-and-gas drilling projects in the Arctic.

According to reports, despite the announcement, dozens of environmental activists protested outside the bank’s headquarters ahead of the annual meeting. It is believed that even after retrenching from some of its relationships, the bank will remain a major banker to the fossil-fuel industry overall.

According to Market Forces, there are over 110 financial institutions globally that have already implemented policies to restrict or end coal finance.

Singapore’s DBS Group Holdings, United Overseas Bank and Oversea-Chinese Banking Corp last year put in place policies to end their lending to coal power projects.

Asia-focused Standard Chartered announced in December that it was pulling out of three coal power ventures in Asean.

Last March, China’s State Development & Investment Corp became the first major domestic financial institution to completely exit the coal industry. Nevertheless, Chinese banks remain the biggest coal sector financiers.

 

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