Malaysia coal plant

Image: Getty Images

While others in the region have made noises about phasing out coal, one bank has put its money where its mouth is despite the difficulties. Philippa Nuttall reports.

As negotiators at COP27 failed to agree on a global coal phase-out, Kuala Lumpur-based CIMB Group pressed ahead with its plans to exit coal, after first announcing such commitment in 2020 saying it was the first lender in Malaysia and Southeast Asia to do so.

Most experts agree that if countries do not stop burning the dirtiest of fossil fuels, the goal of keeping global heating below 1.5°C, or even 2°C, above pre-industrial levels will be impossible. 

Ending investment in coal is particularly challenging for banks in regions like Asean, where coal still contributes well over 40% of the electricity supply and the data needed to create transition pathways is non-existent.

In late 2020, CIMB said it would not finance any new greenfield coal-fired power plants or thermal coal mining anywhere in the world. It also pledged to exit the thermal coal sector entirely by 2040, in line with the 1.5°C pathway set by the Paris Agreement.

In September 2022, CIMB turned its attention to ‘Scope 3’ emissions – those that are produced along the supply chain – with the aim of setting sector-specific interim climate targets and designing transition plans for carbon-intensive sectors such as cement. The bank has already set the interim target of halving its financing and investment exposure to thermal coal mining by 2030 compared to the end of 2021. 

Tough calls

The continuing heavy reliance on coal power in Asean and the region’s significantly increasing demand for energy means these were not easy decisions to make, says Luanne Sieh, head of sustainability at CIMB. 

Energy needs in Indonesia, CIMB’s second-largest market, are expected to grow by 80% by 2040. In 2021, per capita electricity consumption in Indonesia was 13 times lower than that of the US, highlights Ms Sieh.

The climate impact of coal and the availability of “technically and economically feasible clean energy alternatives” convinced the bank it was worth taking the leap, says Ms Sieh. “We see the financing of clean energy and other green sectors as a huge growth area, which will more than replace any short-term costs associated with excluding sectors like thermal coal.”

We see the financing of clean energy and other green sectors as a huge growth area

Despite only representing just under 1% of the bank’s financing exposure, coal was also deemed “a significant source of transition risk for CIMB”. It took “extensive internal negotiations over 12 months” to get the deal over the line, she says.

Scarcity of data

The path towards net zero can be challenging, not least wrestling with the lack of climate disclosure data in Asean. With the exception of Singapore, this data is “generally inadequate and inconsistent, especially for smaller companies”, says Ms Sieh. 

“Unlike in certain developed markets where a database of corporate emissions is available, we had to locate and extract emissions data from each non-retail client’s public disclosures.” 

A similar problem exists for Scope 3 emissions: "We often had to develop estimates based on our clients’ physical production outputs or revenue and standard emission factors for the industry and region,” she explains.

Likewise, as part of the UN-convened Net Zero Banking Alliance, CIMB must set sector-specific emissions targets based on science-based scenarios aligned to a 1.5°C pathway. But finding a way forward that is accurate for Asean is not always easy, says Ms Sieh. 

“We have had, at times, to select a global scenario, instead of an Asia or emerging markets scenario. This could mean we are setting a pace of decarbonisation that is too rapid, potentially putting other considerations such as social development at risk.” The need to balance environmental protection with social development is indeed a key consideration for banks in emerging markets, she adds.

The broader view

CIMB may be blazing a trail for others to follow, but the overall results are mixed. The tide, however, seems to be slowly turning against coal in the region. 

In August 2021, the Malaysian government agreed to stop building new coal-fired power plants, but only by 2040. Indonesia, the world’s largest exporter of coal, said in September that it aims to increase the proportion of renewables in its energy mix from 12% today to 23% by 2025. The launch of a Just Energy Transition Partnership for Indonesia at the G20 summit in Bali earlier this month should also boost the country’s energy transition. 

In a ranking published this week by Candriam, a global asset management firm, however, south-east Asia is singled out for its “weak decarbonisation efforts” –  Indonesia ranked 80th out of 123 countries, while Malaysia placed 91st.

A study conducted in 2021/2022 by PwC showed that more than 70% of Malaysian banks had already made commitments to ban or phase out the financing of coal-related activities, says Ms Sieh. 

Yet only a handful have committed to a coal phase-out date and Ms Sieh suggests some of these pledges are less than robust: “One bank we observed had an exemption in its coal policy for dealings with the national power company.”


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