Stock-take 2023: Are banks in Malaysia aligned with global aspirations?

FOLLOWING the conclusion of the 2023 United Nations Climate Change Conference (COP28), the global stocktake emerged as the central outcome, offering nations a roadmap to develop robust climate action plans by 2025.

The urgency is underscored by the scientific imperative to reduce global greenhouse gas emissions by 43% by 2030 to limit global warming to 1.5°C. And banks play a pivotal role in allocating funds and resources to combat climate change.

To comprehend the trajectory of Malaysian banks in integrating climate, nature, and human rights considerations, we examine their public disclosures against a set of transparent criteria. This ongoing assessment scrutinises the strategies and targets of some of the largest banks, shedding light on their sustainability journey.

The WWF team and partners, BCG and Think City, at the recent 2023 United Nations Climate Change Conference (COP28). A central outcome from the conference is a roadmap for nations to develop robust climate action plans by 2025. – Photo by Tommy Cheo/WWF-Malaysia

‘Climate and net zero’ targets

In our preliminary study, Malaysian banks showcase maturity in recognising sustainability issues and integrating relevant frameworks into their strategies.

Frequent references to United Nations Sustainable Development Goals (UN SDGs) and disclosures of senior management responsibilities are common.

Nevertheless, heightened global standards are now posing new challenges, revealing gaps in the formulation of credible plans for a just transition.

Despite the challenges, one of the seven banks assessed, excels by disclosing science-based targets and conducting climate scenario analyses for sustainable portfolio shifts.

To step up to new challenges and to be aligned with global best practices, we urge Malaysian banks to sign both the Principles of Responsible Banking (PRB) and the Science-based Targets Initiative (SBTi). This commitment demonstrates dedication to responsible banking and establishes a solid framework for setting and implementing sustainability targets.

Gaps exist in policies covering upstream or downstream operations of the palm oil sector, which is crucial for addressing sustainability issues along the supply chain. – Photo by Aaron Gekoski/WWF-US

Nature-related risks

While Malaysian banks have exhibited familiarity with climate-related risks and aligned themselves with Task Force on Climate-related Financial Disclosure (TCFD) frameworks, the global consensus on a new challenge relates to the exploration of nature-related risks.

On this front, efforts by Bank Negara Malaysia, such as the Climate Change Principles-based Taxonomy (CCPT), have facilitated climate resilience towards nature-related risks; yet most banks have not fully embraced such works. Our banks must be ready to embrace the global trend towards better disclosure.

A report jointly published by Bank Negara Malaysia and World Bank on nature-related risks in April 2022, and the launch of the Task Force on Nature-related Financial Disclosure (TNFD) in September last year, underscores the need for increased awareness and action.

Studies conducted by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) provide references to what should be done. A bank in France has demonstrated such a proactive approach by referencing studies conducted by IPBES.

This informed the bank’s public position, elucidating key actions to tackle significant threats to biodiversity. Likewise, Malaysian banks are encouraged to recognise the importance of initiating similar endeavours, allocating resources for development, even in the absence of explicit directives from regulators.

Achieving a climate and nature-positive future is within reach. As the banking sector navigates this intricate landscape, the synergy of climate, nature, and human rights goals remains paramount for a sustainable and resilient future. – Photo by Mazidi Abd Ghani/WWF-Malaysia

Human rights risks

As Malaysian banks pivot towards sustainability, integrating human rights into operations and financed projects becomes imperative. While most banks have general statements respecting selected human rights, commitment to global standards such as the United Nations Guiding Principles on Business and Human Rights or International Labour Organisation (ILO) conventions is lacking.

Some banks have included free, prior and informed consent (FPIC) in their practices. However, this is often a brief mention instead of offering meaningful disclosure.

There is a call for banks to embark on developing and integrating human rights due diligence (HRDD) into their business practices, accompanied by regular progress disclosure.

For instance, banks in Thailand and the Netherlands not only possess established human rights policies but have also taken the commendable step of actively disclosing their human rights reports.

Sectoral assessment

Our preliminary study on sustainable banking extends its focus to the palm oil and energy sectors.

While some banks have disclosed policies for these sectors, the majority lag in comprehensive disclosure and target-setting.

Gaps exist in policies covering upstream or downstream operations of the palm oil sector, crucial for addressing sustainability issues along the supply chain.

With the country’s shift towards greener technologies in line with the National Energy Transition Roadmap (NETR) recently launched by the Prime Minister, disclosures and target settings for the energy sector become increasingly pertinent.

Despite challenges in obtaining data for meaningful targets, positive developments, such as Bursa’s platform for mandatory ESG reporting and the launch of BNM Joint Committee on Climate Change (JC3)’s climate data catalogue, offer avenues for improvement.

Banks can also refer to the palm oil policies of Malaysian and Dutch banks that encompass mandates for clients to adhere to Roundtable on Sustainable Palm Oil (RSPO) membership, apply ‘No Deforestation, No Peat, No Exploitation’ (NDPE) policies, engage with stakeholders, and uphold standards across the supply chain.

One Dutch bank has also outlined comprehensive policies for the energy sector, covering oil and gas upstream operations, bioenergy, nuclear and renewables. Malaysian banks can definitely find valuable references both domestically and internationally to guide the development of robust policies for these sectors.

Amidst the availability of international, regional, and local frameworks, Malaysian banks possess unprecedented leverage to set and act upon goals and targets. Achieving a climate and nature-positive future without compromising the well-being of impacted communities is within reach.

As the banking sector navigates this intricate landscape, the synergy of climate, nature and human rights goals remains paramount for a sustainable and resilient future.