PT Bank CIMB Niaga Tbk - Sustainability

Sustainability Risk Approach Framework
Banking Industry
Risk
Transition and Physical
Risk
Environmental and
Social Risk

Sustainability Risk Approach Framework

1. Sustainability Policy

Sustainable Finance Policy

Human Rights Policy

Exclusion List

High Risk Sector List

Sector Guidance

3. Sustainability Integration in Bank’s Policy

Company Charter

Company Policy Manual
Board of Commissioners
Board of Directors
Audit Committee
Nomination and Remuneration Committee

Operational Risk

Whistleblowing Policy
Anti-fraud Policy
Anti-Bribery and Corruption Policy

Risk and Credit Management

Commercial Credit Policy

Strategic Procurement, Admin, & Property Management

Goods and Services Procurement Policy and Procedure

Human Resources

Company Code of Ethics and Conduct

Finance

Smart Spending Policy

Corporate Social Responsibility (CSR)

CSR Policy

4. Sustainability Scope

Business Relations

Non-individual credit/financing customers
Bank Subsidiaries
Corporate Social Responsibility (CSR) partner or nonindividual beneficiary
Suppliers, vendors, merchants and non-individual outsourcing partners
Business Partners
Members of the Board of Commissioners, Sharia Supervisory Board, Board of Directors and Independent members of Bank’s Board of Commissioners Committee

Non-Individual Financing

Corporate banking segment
Commercial banking segment

Banking Industry Risk Related to Climate Change
Risk type	Examples of Risk	Potential Time Horizon of Risk
Credit Risk	Impact on the repayment capacity of the customers, leading to a possible increase in the default rates	Medium - (1-5 years) to long-term (>5 years)
Market Risk	High volatility and potential abrupt decline in the value of climate-Incompatible securities underwritten or held by Bank	Medium - (1-5 years) to long-term (>5 years)
Liquidity and Funding Risk	Inability of customers to repay their facilities as contracted, which in turn affects Bank’s Cash flow requirements Significant withdrawals of deposits from customers to fund capital expenditures in low-carbon technology or to recover from damages caused by extreme events	Medium - (1-5 years) to long-term (>5 years)
Reputational Risk	Reputational repercussion due to Bank’s financing of carbon-intensive sectors such as coal Poor stakeholder confidence in Bank’s sustainability efforts and ability to manage its exposure to climate related risks	Short - (<1 year), medium - (1-5 years) to long-term (>5 years)
Strategic Risk	Losing competitiveness, market share, and attractiveness to investors due to inability to shift away from financing brown to green financing portfolios	Medium - (1-5 years) to long-term (>5 years)
Capital Risk	Inadequate capital to cater for climate-related risks, which may result in the inability to absorb losses, maintain public confidence, and support the competitive growth of the business	Medium - (1-5 years) to long-term (>5 years)
Operational Risk	Operational disruption caused by physical risk which can impact income loss	Medium - (1-5 years) to long-term (>5 years)
Legal Risk	Risk due to lawsuits and/or weaknesses in the juridical aspect due to laws and regulations related to climate	Medium - (1-5 years) to long-term (>5 years)
Compliance Risk	Inability for Bank to comply with regulations related to climate change and sustainable finance	Short - (<1 year), medium - (1-5 years) to long-term (>5 years)
Intra-Group Transaction Risk	Risk due to the dependence of an entity, either directly or indirectly, on other entities in one Financial Conglomerate in the context of fulfilling written and unwritten agreement obligations, whether followed by a transfer of funds or not. This risk is related to the transitional risk	Medium - (1-5 years) to long-term (>5 years)
Rate of Return Risk	Impact on Bank’s income due to changes in the rate of return or its volatility that may be caused by climate change	Short - (<1 year), medium - (1-5 years) to long-term (>5 years)

Source of Risk			Examples of Potential Impacts
Risk Category	Type of Risk	Example of Risk	Examples of Potential Impacts
Transition Risk	Policy and Legal and increased legal action Risk	Policy and regulatory changes, e.g., GHG emission reduction policies including carbon taxation, outright banks on carbon-intensive activities Legal liabilities (e.g. class action on companies that cause haze pollution	Lower corporate profitability (e.g., due to increase in energy prices) and increased legal action
	Technology Risk	Accelerated obsolescence of higher emission technologies, replaced with new low-carbon technologies Sudden rush of capital expenditures on unproven low-carbon technologies	Corporate devaluation or premature asset write-downs (e.g., closure of coal-fired power plants due to lower cost of renewable energy)
	Market risk	Shifts in customer preferences Increases cost of raw materials or inputs, leading to higher production cost Reduced valuation of assets such as fossil fuel reserves	Lower household wealth and higher inflation (e.g., rising living costs due to carbon cost pass-through and lower corporate profitability)
	Reputational risk	Negative stakeholder perception, concern or feedback on carbon intensive sectors Customers shunning brands that are perceived to be associated with contributing to the climate crisis	Rising public scrutiny on corporate’s unsustainable behaviors and potential drastic loss of customers, impaction profitability
Physical Risk	Acute	Increased frequency and severity of extreme weather events such as floods and droughts	Reduced, or complete loss of residential and commercial property values in affected areas, and increase in prices of property in higher elevations Operational disruptions resulting in income loss (e.g., due to water shortages)
Physical Risk	Chronic	Long term shifts in weather patterns, including mean temperature, precipitation, and sea level

KEY ENVIRONMENTAL AND SOCIAL CONSIDERATIONS FOR ASSESSING RISK

Bank understands that sustainability risks related to deforestation, human rights, waters, and marine issues are important issues. An assessment of these issues has been carried out in the SDD and ESDD processes including fulfillment to Sector Guidance. _{[SUSBA 1.2.1.6][SUSBA 1.6.1.1]}

Sustainability Due Diligence Process evaluates material sustainability risks form two perspectives:

The environmental and social risks that the customers and its operations are exposed to, due to considerations such as the nature of its activities, geographical location, supply chain and raw material production impacts, among others. A key aspect of consideration includes climate related physical and transition risks and mitigation actions that are being pursued.
The environmental and social risks arising from the financed activity. This includes specific project-related risks and related landscape impacts, and includes an assessment of the client’s sustainability commitments, policies, performance, track record, client’s reputation, and reputation risk related to ‘Greenwashing’.

Environmental Risks
Climate Change	Business activities that may be impacted by climate change leading to business disruption and/or negative financial impacts in the future. This could include: Physical risks such as floods, droughts and other extreme weather events, either impacting the business activity itself or via the supply chain; and Transition risks in moving towards a low-carbon economy, such as regulatory changes, carbon pricing and shifting away from fossil fuels.
Deforestation	The risk arising from developments and other industrial activities on forested areas, including those designated as national or state reserves and high conservation value (HCV)/high carbon stock (HCS) areas as assessed by a credible technical assessor.
Biodiversity Loss	The risk arising from activities that occur within or near areas of high biodiversity that may impact endemic or endangered species of flora and fauna.
Inland and Marine Environment	The risk arising from activities that impact inland and marine ecosystems that may cause loss of biodiversity.
Energy Use	The risk arising from high or inefficient use of energy in the form of electricity and other energy sources.
Water Scarcity	The risk arising from activities conducted at areas of water scarcity and where developments could impact water availability through changes in the natural landscape.
Waste and Pollution	The risk arising from inadequate management of waste and by-products, leading to air, terrestrial, freshwater, brackish water and/or marine pollution

Social Risks
Institutional Integrity	The risk arising from poor management practices that may result in non-fulfilment of sustainability policies and commitments and negative environmental and social impacts.
Human Rights and Labour Issues	The risk arising from activities impacting employees, including working conditions and benefits, fair wages, contractual agreements, tight to form associations, and provision of basic needs including housing, access to water, healthcare and education, among others.
Health and Safety	The risk arising from unsafe working conditions, including lack of provision of personal protective equipment, policies and procedures on workplace safety, and adequate medical coverage.
Negative Impacts on Communities	The risk arising from activities that impact inhabited areas, including the Free, Prior and Informed Consent (FPIC) of communities impacted by business activities.

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