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“We know what’s at stake for Asean,” said Maybank’s group chief sustainability officer Shahril Azuar Jimin. He cited data by global reinsurer Swiss RE, which found that Asia risks larger economic losses due to climate change than other parts of the world.
“At a 2.6°C increase (in global temperatures), which is very realistic today, Europe will see a negative change to their gross domestic product (GDP) of 8 per cent, while in Asean it’s -26 per cent,” he pointed out. “And scientists say if we do not do anything today, we’re going to hit a 3.2°C-increase by 2100. At 3.2°C, Europe experiences a 11 per cent drop in GDP, while in Asean it’s -37 per cent.”
Given these risks, Southeast Asian banks are less shaken by global headwinds, said Shahril on a panel discussion at the National Climate Governance Summit in Kuala Lumpur on 8 April. “We know that global politics may change but the principles of nature do not,” he said.
On Tuesday, a week after the summit, the majority of NZBA members voted in favour of relaxing requirements, as part of proposed changes to the alliance’s framework. In a move to offer “greater flexibility” to member banks, NZBA now only recommends that banks align their portfolios with a 1.5°C-global warming target and set five-year goals for reducing financed emissions, both of which were previously mandatory.
Southeast Asia’s CIMB and UOB banks said they had voted in favour of the change, and would replace their net-zero pledge with a commitment to keep global warming to “well below 2°C”.
Maybank and CIMB are part of the NZBA’s 14-member steering group, which includes banks from the United Kingdom, Australia and the United Arab Emirates.
“(Maybank has) seen firsthand the North American and more recently Japanese banks exiting the NZBA, but we see the regional banks staying put – we are not scaling back on these strategic commitments,” said Shahril.
In fact, driven by regulatory pressure, some regional banks are seeing an increase in climate action. In Malaysia, Shahril said that the central bank, Bank Negara Malayisa (BNM) issued a letter to chief executives late last year outlining mandatory steps for climate risk screening, sector classification and the remediation of negative impacts in their lending portfolios. “It wasn’t just a gentle nudge (or) reminder,” he said.
According to a copy of the letter sighted by Eco-Business, Bank Negara Malaysia emphasised the critical need for “credible and comprehensive transition plans”.
Even more recently, on 17 March, Bank Negara Malaysia issued an updated policy document on climate risk management and scenario analysis with new key requirements, including climate-related financial disclosures.
The Securities Commission of Malaysia has also asked banks to develop guidance for transition financing in the country, which is being spearheaded by Maybank, CIMB and HSBC under the Joint Committee on Climate Change (JC3). Shahril said that the group aims to have the document ready by the third quarter of 2025.
Other Asian banks appear to have the same approach. “In our conversation with policymakers around the region, we don’t get the sense that anyone is stepping back from their commitments,” said OCBC’s group chief sustainability officer Mike Ng, speaking at the same event.
Although he acknowledged that the retreat by other banks from the NZBA is a “pretty big speedbump”, Ng said that OCBC’s clients are still focused on decarbonisation and that the physical risks of climate change are still top of mind for many in the region. A recent study by think tank ISEAS Yusof-Ishak showed that climate overtook economic concerns among Southeast Asians in 2024.
Time to reassess priorities
That being said, Ng also believes that the current criticism surrounding sustainability offers an opportunity for practitioners to rethink current pathways.
“In the past few years, there’s been a bit of euphoria when it comes to sustainability – it’s not a bad thing for us to come back to earth and assess what is actually important and impactful, from a sustainability point of view,” said Ng.
Although he believes good progress has been made on lowering emissions in some sectors, such as power and transport, emissions in other sectors such as cement, steel, aviation and shipping have been harder to abate. “I think it’s time for everyone to relook at some of those targets to see if they are still relevant and fit for purpose.”
Those that are outdated should be recalibrated, Ng said, “because the more unrealistic those targets are the less inclined banks or companies will be to commit to those targets.”
In fact, Ng believes it might even be time for regulators to revisit reporting requirements. When he first stepped into his role as sustainability chief two years ago, Ng said he was overwhelmed by the reporting requirements and standards on the market.
“I think it’s important for us to relook [at those requirements] and see what is really necessary,” he said. Citing the European Union’s Omnibus Simplification Package, which was published in February to streamline reporting obligations under the region’s key sustainability directives, Ng said such decisions could reduce the cost of compliance for financial institutions. “That is important, because the more time we spend reporting emissions, the less time we have to reduce emissions.”
Chief sustainability officers of Southeast Asian banks said that they remain committed to climate action. From left: Raja Amir Shah, HSBC Malaysia chief sustainability officer and HSBC Amanah chief executive; Mike Ng, OCBC Bank group chief sustainability officer; Shahril Azuar Jimin, Maybank group chief sustainability officer; and Angus Salim Amran, RHB Group officer-in-charge of group sustainability. Image: Climate Governance Malaysia
Hungry for transition finance
But while both Maybank and OCBC are eager to finance transition-related projects, they have struggled to find interested asset owners and identify projects with the right risk profiles.
Even though Maybank launched its Transition Finance Framework two years ago and has since updated it twice, it has yet to see asset owners embrace it. “Banks are more than happy to provide [transition] financing, but we need to shift the focus to asset owners and what they need to do so that they do not scale back on their climate commitments,” said Shahril.
OCBC’s Ng agreed that there is ample liquidity for transition financing projects, but that risk allocation must be done right to ensure projects are bankable.
“Looking at risk differently is not just the bank’s responsibility… project developers, investors, policy makers, technology providers and operators all need to think about how they should assume some of the risk [associated with decarbonisation technologies],” he said.
Ng cited two examples of decarbonisation technologies which OCBC has supported because the “risk allocation made sense”: carbon capture and storage (CCS) in the United Kingdom, and offshore wind.
In the UK’s CCS industry, policymakers have played a big role by first ensuring that the emitters are responsible for the captured carbon, and then having the government provide a “backstop” by promising to top up revenue for any carbon not captured, said Ng. This provides revenue certainty and mitigates demand and price risks.
From a fiscal responsibility perspective, however, the UK’s Public Accounts Committee has warned that the government’s commitment is high-risk and has not considered the potential financial impact on households.
Meanwhile, in the case of offshore wind, Ng said that turbine manufacturers guarantee the performance of new turbines, lowering the risk for investors.
“As long as risk allocation is done right, capital will flow. There really is no shortage of liquidity for transition projects,” he said.
Building a ‘green curve’
But different approaches are being taken when it comes to small and medium-sized enterprises (SMEs), said RHB Bank’s officer in charge of group sustainability, Angus Salim Amran. “We look at a just transition (as one) that is at a measured pace [that works for] SMEs. It’s not about setting standards they have to follow,” he said. “What costs can they actually absorb?”
Instead of telling SMEs to set targets for 2030 or 2050, RHB has focused on communicating why small actions such as switching to more energy efficient light bulbs can help companies stay in business. “If they invest a bit of money to transition now, that’s going to save them more money than transitioning at a later date,” said Angus. Businesses that demonstrate more progress in decarbonising are entitled to preferential rates at RHB.
However, Angus believes that sustainability should not be treated as a banking product, but as a principle which determines how banking operates going forward. Instead, it is conventional finance which is mispriced today because it does not factor in the cost of emissions, he said.
“Companies should be paying more for a conventional or brown loan [but there is currently] no carbon risk premium on that loan,” he said. “From a macro perspective, what we need to do is to find out what the true cost of carbon is – and it’s not the carbon tax (which can be arbitrarily set by governments).”
Angus suggested that a higher-level “green curve” should be established based on what decarbonisation technologies and development priorities governments are prepared to support. For instance, Malaysia’s National Energy Transition Roadmap (NETR) outlines six key energy transition levers that the government is prioritising as part of its 2050 net-zero commitment, essentially creating a category of bankable transition projects. The levers include energy efficiency, renewable energy and carbon capture, utilisation and storage.
“(When) we create that green curve, then we can plot what corporates, commercial and retail customers should be paying above that – brown (or conventional) pricing will be a lot higher,” he said.
“We can’t look at (transition financing) transactionally. It has to be a stronger, structural play because sustainability is a long game,” said Angus.
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