CIMB Bank has entered into a sustainability-linked derivative (SLD) transaction with Standard Chartered Malaysia in the form of an interest rate swap with a notional value of 2.45 billion ringgit (US$589.54 million) for hedging purposes.
The deal is the world’s first Malaysian ringgit-denominated SLD transaction and to date Asia’s largest environmental, social and governance (ESG) linked derivative transaction by notional value, based on publicly available data and the latest data compiled by the International Swap and Derivatives Association as of January 2021.
Under the deal’s pricing mechanism, a discount (cost reduction) or a premium (penalty) will be applied depending on whether CIMB achieves pre-agreed sustainability performance targets. The ESG overlay of the instrument has been structured around two key performance indicators (KPIs), namely the group’s percentile ranking for banks based on the S&P Global Corporate Sustainability Assessment in support of the group’s aspiration to be an industry leader on the Dow Jones Sustainability Index, and reductions in Scope 1 and 2 greenhouse gas emissions in line with the group’s net-zero ambitions.
Following the transaction, CIMB says it is keen to work with clients to execute more innovative treasury and derivative transactions with ESG-related pricing components or utilization of proceeds, such as swaps, forwards and options involving cross currency, interest rate, commodity, or foreign exchange transactions. The bank has also been active in offering loan and financing products as well as bonds and sukuk that are sustainable or sustainability-linked.
Dato’ Abdul Rahman Ahmad, chief executive officer of CIMB Group, says: “This transaction demonstrates our very real commitment towards achieving our commitments to mobilize RM30 billion in sustainable finance by 2024, achieve net-zero scope 1 and 2 GHG emissions by 2030, and net-zero GHG emissions by 2050, including financed emissions.”
Abrar A. Anwar, managing director and CEO of Standard Chartered Malaysia, adds: “The attitude towards ESG issues has transformed significantly but many companies are still facing challenges when it comes to incorporating sustainability. Despite their intention to transition to net zero by 2050, 67% of corporates have yet to take any action due to the lack of capital. As a key intermediary in the financial system, Standard Chartered is making big strides in the roll-out of new ESG products within our derivatives offering in Asia such as commodity, forex and credit – a proposition that is unique to us and offered globally."