The adoption of sustainable or green financing is becoming more widespread with financial institutions taking charge as a leading catalyst for economic growth. Through the facilitation of crucial financial services, banks are at the forefront of promoting and accelerating the transition of their clients to more sustainable operating standards and lifestyles.
For this, Bank Negara Malaysia released its Climate Change and Principle-based Taxonomy on 30 Apr 2021 to guide financial institutions on various elements which could make their evaluations more comprehensive. This document highlighted risk assessment criteria as well as remedial measures that could be implemented to allow for a more effective transition.
Kenanga Investment conducted a review on three possible considerations which ESG investors may evaluate between banks, firstly is the possible exposure to environmentally-linked financing activities – how dependent the bank is on non-environmentally friendly financing to sustain its profits. Pledges to prohibit environmentally detrimental financing – whether a bank has made the commitment to focus on less
damaging business sectors. And the advancements in sustainable finance products – how much does a bank contribute towards the overall adoption of green financing products.
Post review Kenanga concluded that opportunities are present and abundant. It is gathered that all banks are cognisant of the necessary changes to be implemented to encourage sustainable practices to mitigate climate change. While some banks may be progressing faster than others, it cant be discredited that progress is being made by the rest. For now, the growth projections of sustainable financing should be in sync with our overall expectations of the industry, tapping into economic recovery and the reopening of borders to support business activities. Although household loans may taper off on higher interest rates, competitive offerings on retail green energy financing products may spur interest.
Based on this, Kenanga raises its TP for Public Bank PBBANK (MP) to RM4.65 (from RM4.45) and Alliance Bank ABMB (OP) to RM4.20 (from RM4.00) from the newly awarded 4-star ESG rating. It believes these two names have a solid foundation in ESG efforts, namely for their strong involvement in sustainable financing. The call and TP for the rest of the coverage remain unchanged. Maintain OVERWEIGHT for the banking sector.