Bank Islam Integrated Annual Report 2022

We also understand that the activities of our customers - from micro-enterprises to retail consumers and large conglomerates - have major impacts on the environment and society at large, as well as clear and distinct climatic impacts. Hence, our initial step in developing the ESG risk management framework was to devise a system to understand the ESG impacts arising from the provision of credit and a mechanism to integrate this into our credit and risk assessments. 2021: Phase One We began developing an ESG and climate risk management framework, with an initial focus on climate-related risks across our financing portfolio. The first phase involved conducting a gap analysis of the Bank’s existing risk management systems and policies. 2022 and into 2023: Phase Two We have begun moving into three implementation phases: •• Assessing ESG and climate risks across our nonretail portfolio •• Embedding ESG and climate considerations in our risk assessment of financing customers. •• Conduct scenario analysis and stress testing on our non-retail portfolio Progress in 2022 1 Converging Shariah Values into ESG Risk Management BIMB has been an early proponent of sustainability through the implementation of Value-based Intermediation (VBI) principles. Since 2018, our Business Units have been using the VBI checklist to assess Shariah compliance and environmental and social risk factors including environmental impact, employment/equality and corporate governance during the credit evaluation for onboarding of financing and also annual review of the existing financing. It is used as a preliminary guide in the credit assessment and evaluation process, particularly for non-retail financing assets/ business portfolio. The VBI checklist for preliminary financing assessment covers broad compliance on: •• Business Activities Impact not to fall within non-Shariah compliant activities e.g. liquor, gambling, crime, etc. •• Environmental Impact:̵̵ Environmental protection e.g., waste recycling, renewable energy, replanting/conservation initiatives, “green” procurement etc.̵̵ Non-environmental hazard e.g. not contributing to hazardous pollution, emissions, degradation etc. •• Employment/Equality:̵̵ Ethical activities e.g. equal opportunity employer, non-discriminatory, employment policy-local first, employee turnover etc.̵̵ Not involved in non-ethical activities e.g. adverse labour relations, human trafficking and child labour •• Corporate Governance e.g. no qualifications in accounts, history of legal suits, conduct of existing financing and ethical use of financing. 2 Minimising ESG Risks in Our Portfolio As the BIMB’s ESG Risk Framework is in development, we are currently initiating ESG and climate assessments of business financing applications. The assessments in the form of onboarding checklists, ESG and climate reviews are to be carried out to determine environmental, social and governance risk related to new and existing customers; which may impact the bank. Sustainability Statement Bank Islam Malaysia Berhad 147 01 05 03 07 02 06 09 04 08

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