Page 93 - Bank Muamalat_AR24

ANNUAL REPORT 2024 1 2 3 4 5 Sustainability Statement 6 7 8 91

SUSTAINABILITY RISK MANAGEMENT

ESG and climate-related risks present significant challenges To mitigate these risks, the ESG Scorecard has been fully
to long-term value creation and operational resilience. embedded into the Bank’s credit assessment process.
As stakeholder expectations evolve and regulatory scrutiny Developed in line with Bank Negara Malaysia’s (BNM) Due
intensifies, effective ESG risk management is critical to Diligence Questions (DDQ) under the Climate Change and
maintaining business continuity, safeguarding financial Principle-based Taxonomy (CCPT), the scorecard provides a
performance, and protecting reputation. structured framework to assess and categorise customers’
ESG risk profiles. This includes evaluation against Guiding
A core risk faced by financial institutions is the potential Principles 3 and 4 (GP3 & GP4) of the CCPT, which relate to
adverse impact of customers’ business operations on people climate risk exposure and transition efforts.
and the environment. In providing financing, the Bank
becomes directly associated with its customers’ practices. The ESG Scorecard is used by relationship managers and
This connection creates a responsibility to ensure alignment business units to systematically assign ESG risk scores and
between financed activities and the Bank’s sustainability identify climate-related exposures across sectors. The tool
commitments. Failure by customers to comply with ESG enables the Bank to integrate ESG considerations at both
expectations such as global or local standards, may lead to the transaction and portfolio levels, enhancing risk mitigation
operational shutdowns, financial penalties, or reputational and decision-making.
harm, thereby posing indirect risks to the Bank’s portfolio.

Environmental assessment includes
• Evaluation of climate risk exposure and adaptation strategies
• Supply chain and environmental mitigation measures
• Adoption of sustainable procurement policies
• Deforestation and land-use policies with verified clearance practices
• Water management policies covering sourcing, usage, and pollution
controls
• Management of waste, effluents, and hazardous materials
Social assessment includes
• Adherence to labour laws and avoidance of exploitative practices
• Compliance with the Workers’ Minimum Standards of Housing and
Amenities Act 2019
• Social Impact Assessments (SIA), where applicable
• Implementation of Free, Prior, and Informed Consent (FPIC), where
relevant
• Effective grievance mechanisms for affected communities or workers
• Occupational Safety and Health (OSH) frameworks aligned with ISO
45001
Governance includes
• Compliance with Malaysia’s Anti-Corruption Commission Act and
related guidelines
• Implementation of Anti-Money Laundering (AML) procedures
• Record of legal actions or penalties related to ESG non-compliance
• Adherence to the Malaysian Code on Corporate Governance (MCCG)
• ESG disclosures or sustainability reporting practices
• Valid ESG-related certifications (industry or regulatory)
• Presence of formal sustainability strategies and ESG-integrated risk
frameworks