PT Bank CIMB Niaga Tbk - Sustainability

Sustainability Risk Approach Framework
Banking Industry Risk
Related to Climate Change
Transition and Physical
Risk
Environmental and
Social Risk

Sustainability Risk Approach Framework

1. Sustainability Policy

Sustainable Finance Policy

Human Rights Policy

Exclusion List

High Sustainability Risk Sector List

Sector Guidance

Human Rights Policy

Net Zero GHG Emissions Operations Policy

3. Integration of Sustainability Aspects in Bank’s Policy

Company Charter

Corporate Policy Manual
Board of Commissioners
Board of Directors
Audit Committee
Nomination and Remuneration Committee
Risk Oversight Committee

Operational Risk

Whistleblowing Policy
Anti-Fraud Policy
Anti-Bribery and Corruption Policy
Anti-Bribery Management System Policy
Anti-Money Laundering, Counter-Terrorism Financing, and Prevention of Proliferation of Weapons of Mass Destruction Policy (AML, CTF, and PPPWMD)
Risk and Credit Management
Commercial Credit Policy

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) Policy

Strategic Procurement & Admin Property Management

Goods and Service Procurement Policy and Procedure
Carbon Emission Inventory and Methodology Procedure
Third-Party Risk Management Policy and Procedures

Human Resources

Code of Ethics and Code of Conduct
Nomination of Members of the Board of Commissioners, Board of Directors, and Independent Members of the Board Committees Policy

Finance

Smart Spending Policy

4. Sustainability Scope

Business Solutions

Bank subsidiaries
Corporate Social Responsibility (CSR) program partner or beneficiary
Suppliers, vendors, merchants and 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 Customers

Non-Individual Financing

Corporate banking segment
Commercial banking segment

Banking Industry Risk Related to Climate Change
Climate risk Drivers	Risk type	Impact
Transition Risks Policy and legal changes (carbon unit pricing, sectoral limits) Technological changes Shifts in market sentiment Physical Risks Chronic Acute	Credit Risk	The repayment capacity of customers, potentially leading to defaults. The decline in collateral value due to the abandonment of assets that are not aligned with climate change.
	Market Risk	High volatility and the potential sudden decrease in the value of securities held by Bank.
	Liquidity and Funding Risk	Impact on Bank's liquidity due to customers' inability to repay their facilities, withdrawal of customer deposits, or significant and sudden credit drawdowns resulting from extreme climate events.
	Reputational Risk	Negative reputational impact due to Bank’s financing of high-carbon-emission sectors. A decline in stakeholder confidence in Bank’s sustainability efforts and its ability to manage its exposure to climate risk.
	Strategic Risk	The loss of competitiveness, market share, and investor appeal due to the inability to transition from a high-carbon-emission sector financing portfolio (brown) to a green financing portfolio.
	Capital Risk	Inadequate capital levels to address climate risks, potentially leading to the inability to absorb losses, maintain public trust, and support competitive business growth.
	Operational Risk	Operational disruptions caused by physical risks, impacting revenue loss. Additionally, the emergence of new climate-related regulations may necessitate changes in internal policies and procedures to align with regulatory requirements.
	Legal Risk	Risks arising from legal claims and/or regulatory weaknesses due to climate change-related laws and regulations.
	Compliance Risk	Bank’s inability to comply with laws and regulations related to climate change and sustainable finance.
	Model Risk	Challenges in Bank’s ability to quantify the impact of climate risks accurately due to inherent uncertainties, limitations in climate risk modeling, assumptions and scenarios used, and improper model implementation.

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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