THE green financing segment is expected to continue growing strongly as businesses and individuals intensify their adoption of sustainable practices in their business operations and lifestyles.
Banks are helping to finance the transition while ramping up efforts to get clients to switch to more sustainable ways of doing business.
Global multinationals are incorporating sustainability analysis into their decisions on supply chains and location of manufacturing facilities.This will increasingly be the trend as the Western consumer, in particular, demands products which consume less carbon.
Malayan Banking Bhd (Maybank) intends to further increase its sustainability-linked offerings, strengthen its leadership in clean energy finance and explore opportunities to issue transition bonds/sukuk, within the next one year.
By 2025, Maybank has pledged to mobilise RM50bil in sustainable finance, under its recently announced five-year M25 Plan, and in line with its mission of “Humanising Financial Services.”
“We have been increasingly offering a range of green financing products and services across our wholesale banking, retail and Islamic sectors to meet the growing demand,’’ said Maybank group president and CEO Datuk Farid Alias.
In 2020 alone, Maybank offered green financing facilities focused on lower-carbon solutions for energy and green technology, approving loans worth over RM7bil.
In support of its “Value-Based Intermediation,” Public Bank Bhd is offering competitive financing rates for the purchase of energy efficient vehicles and solar panels to encourage efficient energy consumption among consumers.
Within its overseas operations, Public Bank Vietnam offers financing to businesses involved in waste collection, waste treatment and recycling operations.
“The group has put in place an environmental, social, and governance (ESG) exclusion list of economic activities with high ESG risks that it shall refrain from providing financing,’’ said Public Bank managing director and CEO Tan Sri Tay Ah Lek.
The Public Bank Group is proactively working on the adoption of Bank Negara’s Climate Change and Principle-Based Taxonomy guideline.
It has embedded this guideline in its credit assessment to facilitate the identification and classification of economic activities based on their climate risks to the broader environment.
Banks are helping to finance the transition while ramping up efforts to get clients to switch to more sustainable ways of doing business.
Sustainability-linked loans for corporate clients by CIMB Group Holdings Bhd has been well-received, with RM1bil already committed, out of RM3bil earmarked through 2024.
Under the Coal Sector Guide by CIMB, the group will phase out coal from its portfolio by 2040; effective from 2021, it will refrain from undertaking any form of asset-level or general corporate financing and capital raising directly connected to greenfield, expansionary thermal coal mines or coal-fired plants, in any locations.
This guide is built upon the CIMB Group sustainable financing policy which has been enhanced with various sector guides, for high sustainability risk sectors such as palm oil, forestry, oil and gas, as well as construction and real estate.
“CIMB continues to engage with energy clients, governments and other stakeholders to support their energy and electrification plans, with a focus on financing cleaner forms of energy such as solar and wind,’’ said CIMB Group chief sustainability officer Rafe Haneef.
Through CIMB GreenBizReady, small and medium scale enterprises (SMEs) receive a range of financial solutions and services such as sustainability-linked financing and renewable energy financing, for which an allocation of RM100mil has been set aside.
In the first half of 2021, CIMB was lead manager for the government of Malaysia’s dual tranche US$1.3bil (RM5.5bil) Sukuk Wakala offering, where the US$800mil (RM3.34bil) sustainability tranche was the world’s first US dollar sustainability sukuk offered by a sovereign.CIMB also launched and priced the government of Indonesia’s US$3bil (RM12.69bil) global sukuk offering, including a US$750mil (RM3.1bil) green sukuk tranche.
In the promotion of sustainable lifestyles, CIMB had provided RM285.2mil in financing for green homes.
RHB Bank Bhd has committed to extend RM5bil by 2025, to support green financing activities and the transition to a low-carbon and climate resilient economy.
This is through lending, capital markets advisory and investments.
As at May 31, 2021, the RHB Bank Group’s green financing commitments have increased to RM3.25bil, of which 20% is in renewable energy projects.
At RHB, key ESG risk management developments include ESG-related activities identified under prohibited credits, which has been implemented in Malaysia and across regional operations.
This also includes ESG-sensitive sectors for non-retail lending identified, and industry-specific ESG risk assessment tool adopted for five key sectors todate – palm oil, oil and gas, manufacturing of iron and steel and other materials, power producers and manufacturing of cement.
Three more sectors – wood, plastic and chemicals – will be adopted.
With effect from 2022, RHB Bank Group, under the RHB sustainability framework, will not be pursuing opportunities or provide financing for any new thermal coal projects and coal-fired thermal plants.
At Bank Islam Malaysia Bhd, total green financing, as of December 2020, grew to RM2.25bil from RM1.7bil in financial year 2019, sustaining 3.6% of the entire financing portfolio.
In its strategy to target potential “green” companies, Bank Islam participates in road shows and profiles its existing “green” customers in its annual integrated report and social media channels to attract more of these potential customers.
Bank Islam, in its five-year strategic direction, has put in place a plan to embed ESG, incorporating climate risk in the credit assessment process, and hopes to put in place a broad-based framework by the end of 2022.
“In the third quarter of 2021, Bank Islam will be developing the ESG Risk Management Framework with recognised consultants to define high sustainability risk sectors,’’ said Bank Islam CEO Mohamed Muazzam Mohamed.
Bank Islam has also begun to assess new financing applications for ESG risks with due diligence to be conducted on large scale agriculture, oil and gas, forestry, large scale manufacturing projects, residential and industrial developments, as well as mining and quarrying.OCBC Bank (M) Bhd has drawn up focused strategies to stay ahead of the market by driving industry innovations.
The emphasis is on project financing-related transactions such as renewable energy and waste management.
“OCBC Bank Malaysia sees the importance of working alongside its customers to help them gradually transform, and transcend their business activities to promote the adoption of ESG best practices,’’ said OCBC Bank Malaysia managing director, senior banker client coverage and head of investment banking Tan Ai Chin.
OCBC is reconfiguring its sustainability financing product offerings via sustainability-linked financing, to incentivise companies to embark on and continue their ESG journey, and to conversely prohibit financing to those companies which have not done so.
As for the SME financing markets, the OCBC Group has developed its very own SME Sustainable Finance Framework which aims to facilitate SMEs in accelerating their sustainability plans.
The financing framework is targeted at SMEs that are involved in sustainable activities across eight green project categories eligible under the Green Loan Principles (GLP) by the Loan Market Association. (The GLP was developed with a view to promote the development and integrity of the green loan product).
In respect of its consumer business, OCBC has also instituted sustainable financing which covers, among others, solar panel financing.
HSBC Holdings plc has committed to become a Net Zero bank, reducing its footprint through its operations, supply chain and financing portfolio.
Among its numerous deals In Malaysia, HSBC Bank Malaysia Bhd acted as joint lead manager and joint bookrunner on the government of Malaysia’s US$800mil (RM3.34bil) 10-year sustainability sukuk and US$500mil (RM2.1bil) 30-year sukuk.
HSBC Amanah Malaysia Bhd was lead arranger for Leader Energy’s debut Asean Green Sustainable and Responsible Investment (SRI) sukuk issuance.
“In Malaysia, we have been at the forefront of market-leading transactions, launched innovative sustainable finance solutions, and are driving industry groups to embed sustainability into banking practices within the country, and supporting the communities around us,’’ said HSBC Bank Malaysia Bhd CEO Stuart Milne.
The momentum in green and sustainability-linked financing is gathering pace; this will be the future trend that companies are working towards and those who are not prepared will be left behind.
Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.