Negatively impacts the Group’s business and operational resilience and the ability to generate long-term value to stakeholders. How Does This Impact Us? Non-compliance could have negative financial or nonfinancial implications, including regulatory enforcement, loss of reputation and erosion of public trust. How Does This Impact Us? CLIMATE-RELATED RISK REGULATORY/COMPLIANCE RISK Outlook Climate change poses significant and growing risks to our shared future. Malaysia is also subject to the physical and transition risks associated with climate change that may cause significant implications for the resilience and stability of economies resulting in potential financial and non-financial impact to the Group’s business and customers. The Group is committed to working towards a climate-resilient future through strengthening its climate-related risk management practices, charting pathways to reduce emissions in line with the Paris Agreement recommendations and transparent disclosures. Outlook The regulatory compliance landscape continues to evolve in tandem with the dynamics of the financial sector, in particular for risks related to financial crimes (such as scams, sanctions and corruption), consumer protection and safeguarding, cyber resilience and sustainability. The Group is committed to upholding strong governance practices and implement innovative and effective compliance management programs. These efforts involve various initiatives, including bolstering the compliance ecosystem and enhancing business resilience by reinforcing compliance risk management across all lines of defence and instilling a compliance culture through ongoing and relevant training programmes. Description The potential risks that may arise from climate change, their related impacts and their economic and financial consequences, which include drivers of climate risks, namely physical, transition and liability risks. Description Risk of regulatory sanctions, financial loss, or reputational damage suffered as a result of failure to comply with the laws, rules and regulations issued by Regulators applicable to the Group’s banking activities. Response and Mitigating Actions • Institutionalise Group Sustainability Policy and Group Climate Risk Management Framework in accordance with the BNM Climate Risk Management and Scenario Analysis Policy Document. • Integrate sustainability including climate-related identification, assessment, measurement and monitoring capabilities into the Group’s overarching risk management framework. • Conduct BNM Climate Change Principles-based Taxonomy (CCPT) due diligence as part of customer onboarding and annual review process. • Perform selected ESG due diligence for selected financing customers based on Financing Committee’s deliberation. • Capacity building on Climate Risk Stress Testing (CRST) in preparation for BNM’s 2024 CRST Exercise. Response and Mitigating Actions • Policies and procedures are updated periodically, and effective internal controls are in place to ensure compliance with the relevant laws and regulations and consistency across the Group, with adaptations at the subsidiary level for specific regulatory needs. • Undertake Compliance Risk Assessment (CRA) to identify and manage regulatory risks, taking into account the inherent risks and control effectiveness. The result of the CRA is used to strategise and prioritise appropriate compliance testing and reviews. • Continuous efforts to uphold a corporate culture of high ethical standards and integrity through continuous refinement of compliance competencies and training. • Promptly and accurately report all regulatory non-compliance issues and incidences to the Management and Board Committees. Opportunities Arising From This Risk • Development of financing solutions for infrastructure projects designed to enhance climate resilience and support climate adaptation/mitigation efforts. • Embark on climate sensitive sector scenario analysis for opportunities and business strategy development. • Expansion of Green and Transition Financing Portfolios by targeting high-impact sectors, including renewable energy, green infrastructure, and sustainable agriculture. • Enhance Operational Efficiency through implementation of energy-saving technologies and renewable energy to reduce costs and carbon footprint. Opportunities Arising From This Risk • Regular engagements with external and internal stakeholders to ensure timely updates of industry developments and regulations that facilitate effective decision-making. • Leveraging deep insights and industry knowledge would support the adoption of best practices. CRR RCR Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2024 62 Key Risks and Mitigations
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