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


  • 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
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)
Chronic Long term shifts in weather patterns, including mean temperature, precipitation, and sea level


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][SUSBA]

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

  1. 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.
  2. 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.


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.