This article first appeared in Forum, The Edge Malaysia Weekly on June 17, 2019 - June 23, 2019

More than a million species of plants and animals are facing extinction — many are predicted to disappear within a few decades — due to years of rampant poisoning, looting, vandalism and the wholesale destruction of the planet’s forests, oceans, soils and watersheds, according to a recent report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES).

Given IPBES’ findings, and as public awareness grows, is it any wonder that more and more rallies are being staged to highlight the governments’ seeming lack of urgency in tackling social and climate change issues?

In recent weeks, we have witnessed an Extinction Rebellion, the climate protests that caused a standstill in London, and more recently in Paris, where 300 litres of red liquid, dramatically representing the blood of “animal species and humans that have died and will die”, were poured down the steps of Trocadéro Palace. On May 24, more than 1.4 million young people and school children from 110 countries — repeating the Greta Thunberg-inspired protest in March — participated in global climate strikes in more than 1,400 cities, amid increasing concerns about our climate crisis, and decrying the governments’ lack of seriousness in mitigating it.

From a social perspective, the access to quality education and healthcare are fundamental to shaping a healthier, and more productive and prosperous society. However, rising income inequality in recent decades has limited access to such services and reduced the people’s trust in public institutions and businesses. This, in turn, increased the cost of doing business and jeopardised healthy stakeholder relationships.

These social and environmental issues are real, and the abundant evidence can no longer be ignored. In our quest for a “better life”, we are not only over-exploiting the resources that future generations will need for their survival but also impeding the socio-economic growth of certain segments of society. In our attempt to be better and overcome current challenges, we are stacking up the odds against the continued existence of flora and fauna, and against humankind’s survival.

The business of good

The main purpose of business is to make a profit. In the process of accumulating profit, businesses often not only consume natural resources faster than the planet can replenish them, but also inadvertently cause unintended consequences to the people, communities and the environment. Many businesses do not consider the “cost of externalities” or the negative impact of their operations on people and the planet, which do not impact their profits directly. If, let us say, a company secretly dumped toxic waste into a river, its profit is “increased” because it avoids the cost of proper waste treatment and disposal.

However, there is still a cost to be settled, for example, in the form of cleaning up the river, medically treating people who fall ill due to contaminated water and the loss of river-dependent livelihood and safe recreational spaces, to name a few. Often, such cost is borne by the government, which inevitably means taxpayers.

The overall net positive contribution that businesses add to the economy, the industry and society at large is what makes “profit” justifiable. Globally, many companies have begun shifting from purely traditional financial performance indicators to supplementing these measures with environmental, economic and social (EES) impact metrics — also known as the “People-Planet-Profit” bottom line — in their business decisions. As EES awareness grows, corporations have a large role to play in ensuring that sustainable business and equitably will become the norm, rather than the exception, and preferably sooner, rather than later.

The challenge

The concept of sustainability may seem simple but to “live and breathe” sustainability is not easy. Many companies today are grappling with what that concept means in the context of their business and stakeholders. Those embarking on their sustainability journeys without proper thought and planning will inevitably face unexpected complexities and challenges.

Embedding sustainability principles within the business model requires, first and foremost, a fundamental change in the mindset of the leaders, employees, customers and other stakeholders. The biggest mental change is to start perceiving a business as more than just a profit-generating machine. This involves revamping the organisational DNA by adding purpose to profit; changing the way people work, deploy resources and manage people; and adopting a longer-term view of performance.

At CIMB Group, our refreshed purpose is to advance customers and society. We believe that if we can meaningfully address the socio-economic and environmental issues that matter most to our customers and other critical stakeholders, we can serve our purpose, without compromising on competitiveness and profitability.

There are various ways to start the sustainability journey. Based on our soul-searching and revamping of business priorities, I recommend four key steps to get both businesses and stakeholders moving in the right direction to achieve common EES goals.

1. Clarify your purpose, envision your future

In developing our group-wide mid-term strategy, Forward23, senior management and I engaged our colleagues, shareholders, customers, investors and governing bodies to discuss their priorities, concerns and aspirations vis-à-vis their interactions with CIMB’s businesses and operations. It was heartening to note that sustainability and environmental conservation were key themes in those discourses.

Although sustainability became our internal goal from a future-proofing and risk management perspective, this goal was defined by utmost consideration on how it would benefit the people and our planet. Through participation and dialogue, we discovered our stakeholders’ unique perspectives and began viewing our business through their lens. The process led us to identify many aspects of our business, which are material not only for strengthening our stakeholder relationships, but also for delivering value and gaining a competitive edge. Today, sustainability is one of the five key pillars of CIMB’s new mid-term strategy and we envisage ourselves as a sustainability champion in both Malaysia and Asean.

Embracing EES has provided a valuable opportunity for us to re-define CIMB’s future corporate responsibility (CR) initiatives in Asean through a broader sustainability lens. This will deliver a more holistic impact as well as longer-term returns from our commitment of 1% of pre-tax profits — which translates into RM60 million to RM65 million annually — towards Asean-wide CR projects.

2. Critically evaluate what you should (and can) do

Based on our business model as a financial intermediary and the areas where we could make the most impact, we adopted a number of the 17 United Nations Sustainable Development Goals (UN SDGs) to help refine our vision. CIMB has adopted seven SDGs — namely decent work and economic growth; industry innovation and infrastructure; responsible consumption and production; peace, justice and strong institutions; reduced inequalities; climate action and life on land — to help us frame specific initiatives and our long-term sustainability goals.

We fully understand that there would be no quick-fix “silver bullets”. It was crucial to look at our entire value chain and business operations to identify areas where we could make the most impact. For instance, it may be simple enough to achieve a gender-balanced workforce purely through recruitment. However,

creating a conducive and equitable growth environment for female employees requires a more strategic and systemic approach that involves changes in how female talents are developed, rewarded and retained; how gender issues are managed at the workplace; and how male employees could change their perceptions of the role and business case of working women. This comprehensive and holistic approach creates a much larger impact by far.

We also recognise that the concept of sustainability is about how we operate and derive our profits. By examining our value chain, we have begun to look at, among others, our energy and water consumption; the volume and types of waste generated; the impact of our products and services; and how we promote EES goals, fairness, transparency and ethics in dealing with our stakeholders. In short, a genuine sustainability strategy requires efforts that crosses all businesses and operations of a company. With careful planning, investments and across-the-board commitment, the aim is to pivot our business into a sustainable company by institutionalising long-term change from the inside out. It is not a journey that we take lightly.

3. Know that EES is compatible with profitability

Ask the masses on what sustainability is, and chances are they will say it is about “not using plastic bags and straws”. Similarly, many companies think sustainability is about not harming the environment or society. However, it is more than that. It is about creating a positive impact. A truly sustainable product or service is one where the company makes a profit, while also positively impacting stakeholders and the planet.

At CIMB, we are exploring high-potential and innovative solutions for the future, which may even include reinventing some business models. Additionally, we hope to increase support for industries, such as renewable energy and waste management, and partner with leading non-profit organisations to help stakeholders build their capacity to address EES issues. Last year, CIMB Bank and CIMB Islamic rolled out financing for new hybrid vehicles and residential properties certified under the Green Building Index — with a rate that is 0.10% lower than regular rates. To date, RM34 million has been disbursed to our customers for hybrid cars, but only RM9.2 million for green mortgages, mainly due to insufficient supply of green homes. A modest start in the context of our total loan book, but a step in the right direction, nonetheless.

As consumers and investors increasingly look to support businesses with positive EES impact, it is no surprise that assets under management in portfolios that embed sustainability principles have grown to an estimated US$23 trillion globally. This is an increase of more than 600% over the past decade, representing a compound annual growth rate of 23% per annum. Consider also these facts: US$2.5 trillion is needed annually to close the gap in sustainable development and infrastructure; and the global green bond market, valued at US$167 billion by end-2018, is set to grow at a robust rate. In 1Q2019 alone, US$48 billion of green bonds were issued, which is a whopping 42% increase on 1Q2018 figures!

Banks are well-positioned to capture these opportunities. In fact, early last year, CIMB jointly arranged the world’s largest US$1.25 billion Sovereign Green Sukuk for the Indonesian government. Ethical investment and lending is growing fast, spawning indicators, such as MSCI World SRI Index, FTSE4Good and Dow Jones Sustainability Indices in the process. These indices signal the speed at which the business world could reach the “tipping point” of positive EES impact.

4. Get stakeholders and partners on board

In walking the talk and institutionalising a new mindset, the most important thing is to get stakeholders to buy in and institute change from the inside out. Employees and other stakeholders must be made aware and consulted on the viable options towards achieving positive EES impact. To that end, we have begun by incentivising #teamCIMB to think, live and breathe sustainability. Internal and external EES-themed projects, for example, get strong support and funding for execution.

In changing ourselves, we also hope to inspire others in the process. Looking beyond our own walls, one of our goals is to promote the concept of “shared values” by developing partnerships with clients, suppliers, government entities, civil societies, trade unions and academia to forge more transparent conversations about environmental and social benefits and costs. Partners within this framework could share their EES expertise in, for example, measuring inputs and outcomes to nurture an ecosystem of accountability. Companies, regardless of product or service, can contribute through innovation and smart investments to make such an ecosystem successful. This could create a virtuous cycle of localised economic growth and social development. And beyond that, we hope to foster greater cross-sector collaboration at the national and regional levels.

Members of various industries have begun organising themselves to ensure that discussions on sustainability or sustainable development goals are fair and balanced. With global debates in industries, such as palm oil and timber appearing lopsided, it is even more crucial for industry members and policymakers to contribute towards a well-balanced global framework that will benefit all stakeholders.

For banking, the United Nations Environment Programme Finance Initiative (UNEP FI) is one such platform to direct future financing imperatives based on global best practices on sustainability. Through UNEP FI, the Principles of Responsible Banking are currently being drafted by a group of 28 banks including CIMB. Scheduled to be launched in September, these principles aim to encourage banks to refine their policies to include, for example, incentivising clients and suppliers to embark on the sustainability journey as well as factoring environmental and social aspects into all funding and operational decisions.

Bank Negara Malaysia’s push for value-based intermediation (VBI) principles in the Islamic banking industry foresaw the growing influence of sustainability in the global space. Similar to concepts such as socially responsible investing (SRI), VBI advocates Shariah practices and offerings that generate positive and sustainable EES impact consistent with shareholders’ expectations.

In a lock-step with the group’s sustainability efforts, CIMB Islamic is a strong advocate and champion of VBI. The bank aims to create more opportunities and sweet spots for stakeholders by strongly supporting and enabling

responsible businesses. Once critical mass is achieved, all stakeholders, including banks, will naturally benefit from more sustainable returns at every level of the economic value chain.

Act now! Tomorrow may be too late!

Any big corporate or industry — given its resources, network and role in supporting economies — could be a force for good. Corporations with more resources have not just a moral obligation, but an invaluable window of opportunity to help achieve that EES critical mass and tipping point, hopefully, before the damage to society and the environment becomes irreversible and we run out of options.

At CIMB, we started our sustainability journey by questioning the very purpose of our business and the legacy that we would like to leave behind for the next generation. With plenty of soul-searching and in redefining our business approaches, sustainability is now well-positioned as one of the key pivots to shape CIMB as an organisation that conducts all parts of its business in a responsible manner. It is a continuous learning journey with our stakeholders, within and outside the banking industry. We welcome anyone or any entity who would like to join us in our quest for a better world for all.

Will tomorrow and our children’s children thank us for our current efforts? Or will future generations spend their resources paying for our collective misdeeds? As businesses, we must acknowledge that our fiduciary duty also encompasses a moral obligation to consciously contribute to the People-Planet-Profit equilibrium, and if not now, then when? Let us act together now, for tomorrow may be too late.

Tengku Zafrul Aziz is the group CEO of CIMB Group. CIMB welcomes like-minded individuals or companies who would like to collaborate on developing sustainable solutions and ecosystems within Asean.

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