KENANGA INVESTMENT BANK BERHAD 52 INTEGRATED ANNUAL REPORT 2025 SUSTAINABILITY STATEMENT Climate Risk Stress Testing The CRST exercise evaluates potential financial and operational impacts of climate change through the assessment of transition and physical risks across sectors and regions under multiple stress scenarios. Guided by BNM’s methodology and NGFS Phase III scenarios, namely NZ2050, DNZ2050 and NDCs, together with the Representative Concentration Pathway 8.5 one-off 1 in 250-year flood event, the assessment focuses on the credit portfolio to estimate ECL impacts across different climate pathways. The exercise applies both bottom-up and top-down methodologies to assess resilience under varying climate conditions, providing insight into how exposures may respond under different scenarios. The Process The assessment covers both physical and transition risks, supported through a combination of external and internal data. External inputs include energy mix data, flood maps, damage ratios and labour productivity studies, while internal inputs include client financials, collateral details, addresses and ECL information. A bottom-up approach is used to stress client financials across time horizons based on flood, heatwave and other climate-related events. This is complemented with a top-down approach that incorporates climate-stressed macroeconomic variables to provide a sector-level perspective. These approaches provide a structured basis for assessing potential impacts across different layers of the portfolio. The Outcome The overall climate-stressed ECL impact is minimal as the Group’s exposures are largely secured with adequate collateral, resulting in no material financial impact or required corrective actions. The physical vulnerability assessment of branches similarly indicates immaterial risk. While the results indicate minimal impact, the Group continues its efforts to advance initiatives under the Decarbonisation Roadmap and explore relevant transition opportunities, supporting longer term positioning as climate considerations evolve. The exercise also highlighted sector-specific for future strategic consideration: • Transition risks: o Portfolio-level: Corporate loans—particularly to large corporates, show higher exposure to transition-related factors. o Sector-level: Real Estate & Construction face increased costs from tightening sustainability standards, while Oil and Gas sectors are affected by the shift towards cleaner energy sources. • Physical risks: o Flooding: Collateral in low risk flood zones shows minimal impact. o Heatwaves: Labour-intesive sectors such as Oil & Gas and Construction may experience productivityrelated pressures. These insights support future strategic and risk management planning as climate-related factors become more prominent. Measurement of Scope 3 – Category 15 (Investments) Kenanga Group measures and manages its financed, facilitated and portfolio emissions in line with the PCAF Standard, covering all on-balance sheet and off-balance sheet activities within its Malaysia operational market, including Kenanga Private Equity Sdn Bhd, Asset & Wealth Management, Corporate Banking and Islamic Markets, Equity Capital Markets, Debt Capital Markets and Group Treasury. Financed emissions disclosures for FY2023 and FY2024 were developed using the best available data, and a formal methodology note was introduced in 2025 to guide consistent data collection, calculation and reporting. Our emissions are currently calculated on a one (1)-year arrears basis, with FY2024 representing the most recently completed computation. The current methodology incorporates counterparties’ Scope 1 and Scope 2 emissions, with future expansion to Scope 3 as data availability improves. Asset classes in coverage include the listed equity, corporate bonds, business loans, project finance, sovereign debt and facilitated transactions. Data limitations—such as time lags and gaps in counterparty level emissions—are addressed using sector level proxy data. The Group remains committed to strengthening data quality, engaging counterparties and enhancing methodologies to support future decarbonisation planning.
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