As an industry leader, CIMB has many milestones under its belt and it is no surprise that CIMB continues to chart many more feats. The bank scored yet another first when it announced it has entered into a sustainability-linked derivative (SLD) transaction with Standard Chartered Malaysia.
Based on publicly available data and the latest data compiled by the International Swap and Derivatives Association (“ISDA”) as of January 2021, the SLD which takes the form of an interest rate swap with a notional value of RM2.45 billion for hedging purposes is the world’s first Malaysian Ringgit denominated SLD transaction. And to date Asia’s largest environmental, social and governance (ESG) linked derivative transaction by notional value.
The SLD transaction has been structured to involve a pricing mechanism whereby a discount or premium will be applied depending on whether CIMB Group achieves pre-agreed sustainability performance targets (“SPTs”). The ESG overlay of this instrument has been structured around two KPIs that reinforce recently announced sustainability commitments made by CIMB Group.
What Are The KPIs?
The two KPIs are the Group’s percentile ranking for banks based on the S&P Global Corporate Sustainability Assessment1 in support of the Group’s aspiration to be an industry leader on the Dow Jones Sustainability Index (“DJSI”), and reductions in Scope 1 and 2 greenhouse gas (“GHG”) emissions in line with the Group’s Net Zero ambitions.
The SPTs that have been set are material, ambitious, objective, measurable and verifiable by independent sources.
Dato’ Abdul Rahman Ahmad, Group CEO of CIMB Group, said “We are pleased to have successfully executed this groundbreaking SLD transaction, a testament to the expertise of our Treasury & Markets team and our Group’s ambition to be an ASEAN sustainability leader by 2024,” he said.
He further commented “this transaction demonstrates our very real commitment towards achieving our commitments to mobilize RM30 billion in sustainable finance by 2024, achieve net zero scope 1 and 2 GHG emissions by 2030, and Net Zero GHG emissions by 2050, including financed emissions.
As a financial intermediary, CIMB plays a critical role in channeling financing and capital in ways that will support a fair transition towards a net zero economy and greater social equity. In collaboration with their clients and partners, the bank looks forward to introducing more innovative offerings such as this SLD in the sustainable finance space.
Abrar A. Anwar, MD and CEO of Standard Chartered Malaysia, said that while the attitude towards ESG issues have transformed significantly, many companies are still facing challenges when it comes to incorporating sustainability. Despite their intention to transition to net zero by 2050, 67% of corporates have yet to take any action due to the lack of capital2.
“As a key intermediary in the financial system, Standard Chartered is making big strides in the rollout of new ESG products within our derivatives offering in Asia such as commodity, Forex and credit – a proposition that is unique to us and offered globally. We’ve been named as Currency Derivatives House of the Year at the Asia Risk Awards 2021 due to our ability to deliver solutions and shift risk via our product suite. We are grateful for the opportunity to support CIMB with fulfilling their sustainability agenda as we collectively navigate net zero,” he enthused.
Pioneering Initiative by CIMB & Standard Chartered
Healing the world is a mammoth task, and this landmark deal shows how instrumental collaboration is to make that happen. It isn’t just about helping clients; Standard Chartered is looking inwards and making its own commitments. To that effect, Standard Chartered is working towards reaching net zero carbon emissions from its financing by 2050, as part of its strategic commitment to put the world on a sustainable path to a zero-carbon economy.
This SLD offering extends CIMB’s track record as an early mover in sustainability-linked instruments in the ASEAN region. CIMB has been actively providing sustainable lending/financing products and was one of the first banks in the country to launch sustainability-linked loans (“SLLs”) or corporate clients in 2020 with an allocation of RM3 billion through 2024.
As for the bonds/sukuk space, in the first half of 2021, CIMB acted as the lead manager for the government of Malaysia’s dual tranche US$1.3 billion Sukuk Wakala offering, where the US$800 million sustainability tranche was the world’s first US dollar sustainability sukuk offered by a sovereign. CIMB also launched and priced the government of Indonesia’s US$3 billion global sukuk offering, including a US$750 million green sukuk tranche.
In 2019, CIMB Group introduced its Group Sustainable Financing Policy and in 2020, the Group implemented its Green, Social, Sustainable Impact Products and Services (“GSSIPS”) framework.