03 / OUR VALUE CREATION APPROACH 01 02 04 05 06 07 08 09 33 KEY RISKS, MITIGATION AND OPPORTUNITIES Sustainability risks are measured across the three different sub-categories of risks which are Environmental, Social and Governance (“ESG”) risks. ESG risks refer to the potential adverse financial, legal, operational, or reputational impacts that arise from the Group’s environmental practices, social conduct or governance structures. As part of the environmental risk pillar, climate risk is deemed as a key focus due to its growing relevance and impact. Climate risk is an indirect risk that refers to potential losses or disruptions resulting from climate change. A risk of change in the climate can potentially have a negative impact on credit, market, operational and reputational risk of the Group if the risk if not appropriately managed. Climate risk also refers to the potential impacts arising from both our direct exposure to climate-related events and the risks embedded within our financing and investment activities. These risks can be categorised into physical risk such as effects of extreme weather events, and transition risks relating to the global shift towards a lower-carbon economy and changing regulatory frameworks. Mitigation Measures • Established a robust sustainability and climate risk governance structure to oversee climate-related matters, integrating climate risk into key risk management frameworks and decision-making processes. • Established a framework that provides a unified approach for identifying, assessing and managing sustainability risks across the Group. • Enhanced the framework in relation to climate change risk management to integrate climate considerations into governance, strategy, operations, reporting and risk management. • Climate risk assessment and client engagement through internal Climate Change and Principle-based Taxonomy classification assessment. • Developed tools such as the Climate Change Risk Assessment Checklist and the Enhanced Due Diligence to guide risk identification and classification. These tools are regularly updated to incorporate the latest climate risk assessment developments, ensuring a comprehensive and robust risk assessment outcome. • Established monitoring, reporting and stress testing for climate risk. Conduct climate risk stress testing and scenario analysis per Bank Negara Malaysia guidelines to assess portfolio and sector-level risks and develop mitigation strategies. • Quantified financed emissions by sector (Scope 3) to support development of risk metrics and mitigation measures. • Incorporated sustainability risk in outsourcing and procurement frameworks to assess third-party service providers’ environmental and climate risk profiles. • Integrated physical climate risk assessment for HQ and branches into operational risk management self-assessment and business continuity management evaluations. • Capacity building via training and sharing sessions on climate risks for employees to enhance awareness, strengthen risk management capabilities as well as integrate climate considerations into decision-making processes. Opportunities • Generation of new business opportunities by leveraging on climate risk sectorial profile and where appropriate, offers sustainability or climate-friendly and supportive products to promote and facilitate client’s transition journey. • Strengthen relationships with clients by supporting their transition journey. Enhance the Group’s reputation as a responsible and respected financial institution with our business level and enterprise sustainability risk management. • Strengthen employer branding by embedding sustainability into corporate culture, attracting top ESG-focused talent. Our Approach A proactive approach to sustainability risk management at business and enterprise level to ensure sustainability risks considerations are embedded across all operations and businesses. In the area of climate risk management, the Group’s climate risk management approach supports the climate transition journey of our customers and helps safeguard the long-term sustainability of the Group. This also ensures that we remain aligned with the evolving market expectations and regulatory requirements. Impact to Kenanga Financial institutions that fail to manage sustainability risks appropriately would risk regulatory sanctions, reputational damage and potential impact on lending, financing and investment portfolio. There are two (2) key areas, in particular, that sustainability risk impact may affect the Group: 1. Reputational risk: Failure to act responsibly and manage sustainability-related risks could damage the Group’s public image and erode customer and investor trust. 2. Potential financial loss: Sustainability risks particularly climate risks including physical and transition risks could result in substantial losses in lending and investment portfolios if risks are not managed well, especially for clients within climate-vulnerable sectors. R6 Sustainability and Climate Risk
RkJQdWJsaXNoZXIy NDgzMzc=