Pilot runs of the CRST exercise for our financing portfolio were carried out in 2022 and 2023, focusing on short, medium and long-term scenarios involving both transition and physical risks guided by Network for Greening the Financial System (NGFS) scenarios namely: • Orderly scenarios assume climate policies are introduced early and become gradually more stringent. • Disorderly scenarios explore transition risk due to policies being delayed or divergent across countries and sectors. For example, carbon prices would have to increase abruptly after a period of delay. • Hot house world scenarios assume that some climate policies are implemented in some jurisdictions but global efforts are insufficient to halt significant global warming. The scenarios result in severe physical risk, including irreversible impacts such as sea level rise. The results of CRST will be key to understanding and identifying our risk exposure, particularly the distribution of risks across different sectors. This knowledge will allow us to manage these risks more effectively. We are continuously refining our CRST approach to ensure it aligns with the industry-wide exercise planned by Bank Negara Malaysia (BNM) via the 2024 Climate Risk Stress Testing Exercise Methodology Paper issued on 29 February 2024. This ongoing effort will ensure our risk management practices remain robust in the face of climate change. Physical Risks Transition Risks High Low Low High Orderly Hot house world Disorderly Too little, too late Divergent Net Zero (1.5'C) Delayed 2'C Net Zero 2050 (1.5'C) Below 2'C NDCs Current Policies NGFS Climate Scenarios Framework 4. Climate Metrics and Targets In our efforts to manage climate-related risks and opportunities, and achieve sustainability goals, we place a strong emphasis on tangible metrics and targets, including emissions tracking and sustainability benchmarks: Scope 1 & 2 Emissions Monitoring: We actively track our direct and energy-related indirect emissions to establish a solid foundation for our carbon management strategy. Scope 3 Emissions Baseline Development: We are extending our emissions tracking to cover Scope 3, aiming to fully understand the indirect emissions throughout our value chain. This expansion is crucial for a holistic view of our environmental impact. Key Performance Indicators (KPIs): We have established KPIs focused on climate risk exposure, increasing sustainable products and services offerings, and embedding these in Group-wide performance scorecards. For details on our carbon emissions, please see “Emissions and Environmental Impact” on page 118. Source: NGFS (2021) 169 1 2 3 4 5 6 7 8 9 www.bankislam.com SUSTAINABILITY STATEMENT
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