Risk type Our Achievements in 2023 Credit risk • Continuous development of our expected credit loss methodology to assess the impact of climate related transition and physical risks under various climate risk scenarios to our financing portfolio. • Utilised third party tools to: – Assess transition risk for the non-retail portfolio by sector and physical risk by geographic location. – Assess transition risk for the retail portfolio through macroeconomic variables and physical risk by geographic location. – Estimate the Weighted Average Carbon Intensity (WACI) for our non-retail portfolio as an initial step to identify and mitigate climate-related credit risks linked to carbon-intensive sectors. Integrating WACI into the Bank’s credit risk analysis process allows us to align our financing activities with national and global carbon reduction targets, steering our clients towards sustainable business practices and ensuring the environmental integrity of our portfolio. Market risk • Enhanced the market risk framework to assess the impact of climate related risks arising from transition and physical risks under various climate risk scenarios. Liquidity risk • Enhanced our liquidity risk framework to assess the impact of deposit withdrawals arising from climate transition risk and physical risk based on their sector and location under various climate scenarios. Operational risk • Conducted physical risk profiling of all our operating locations using third party tool, and the Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathways (RCP) 8.5 scenario based on a 2030 to 2039 time horizon. • Enhanced existing operational risk frameworks and tools to incorporate climate-related risk considerations, including: – Identification of climate-related risks as part of Risk and Control Self-assessments (RCSA). – Identification and reporting of climate-related loss events. – Assessment of ESG & climate related risks for outsourcing service providers. – Integration of climate-related risk assessments into the business continuity management process. – Assessment of climate-related risks for new product approval processes. – Conducting climate physical risk assessments for the establishment of new branches or branch relocations. The evolving nature of climate risk methodologies necessitates continued refinement of our approach. In 2024, we will focus on embedding the newly developed frameworks into our established risk management processes. Data availability remains a challenge; however, as data quality improves and innovative climate methodologies emerge, the Bank intends to continuously refine our approach. This ongoing process will allow us to achieve a more comprehensive and quantitative understanding of our climate risk exposure. Climate Risk Stress Testing (CRST) Climate risk stress testing is a valuable tool for evaluating the Bank’s resilience to market movements. The scenarios encompass potential future developments in the energy transition or severe climate events. The Bank has made notable strides in developing climate risk stress testing methodology on the financing portfolio. Since 2022, we have gradually strengthened our climate capabilities to integrate the impact of climate change into our stress testing frameworks. 168 Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2023 Governance
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