Hong Leong Bank leads the way in ESG

According to CGS-CIMB Research, strong ESG standard is a plus for Hong Leong Bank.

PETALING JAYA: Hong Leong Bank Bhd (HLB) appears to have one of the best environmental, social and governance (ESG) standards among banks in Malaysia.

The fifth-largest lender in Malaysia is noted for its efforts in promoting ESG practices across its operations. These include working with its borrowers to improve ESG standards; incorporating ESG evaluation in its loan approval process; and practising disclosure of ESG-related information.

According to CGS-CIMB Research, strong ESG standard is a plus for HLB.

In its report, the brokerage said it expected HLB to further enhance its ESG adoption by fully integrating ESG evaluation into its decision-making processes; increasing the financing of renewable energy (RE) projects; measuring and disclosing its greenhouse gas emission; and quantifying and disclosing the impact of climate-change risks to its business.

As at end-March 2021, HLB’s financing of RE projects stood at only at RM1bil, 0.7% of its total loans.HLB classified 18% of its loans as having high environmental and social risks, including loans to companies involved in selected manufacturing (7% of total loan), palm oil (6%), mining (3%), non-renewable energy (1%), and forestry (less than 1%).

“HLB stated that its ESG initiatives would help to improve the sustainability of its earnings, by lowering the reputational and regulatory risks for not complying with ESG requirements and reducing its exposure to customers with high ESG risks, ” CGS-CIMB Research wrote in its report following a recent sustainability briefing by HLB.

“This is in line with our view as we do not expect HLB’s ESG initiatives to act as a material catalyst for its earnings, ” the brokerage added.

CGS-CIMB Research maintained “add” on HLB with an unchanged target price of RM20.78.

Similarly, TA Research reiterated “buy” on HLB, with an unchanged target price of RM23.

In addition, it maintained its ESG score for HLBB at 4-star, supported by an E, S and G score of 4-star, 4-star and 5-star each.

“In line with good ratings from other global ESG indices and assessments such as FTSE4Good, RAM Sustainability and WWF (Sustainability Banking Assessment), we score HLBB’s sustainability efforts above industry average, ” TA Research said.

“However, while we remain positive over HLBB’s strategic initiatives, we look forward to clearer goals and targets set in the near future, ” it added.

Meanwhile, AmInvestment Bank Research raised its fair value for HLB to RM20.90 from RM20.30 previously, while maintained its “buy” call on the bank.

The brokerage said the revised fair value reflected a 3% premium to its share price following the upgrade in its ESG rating for HLB to four-star from three-star previously.

“We continue to like HLB for its improving top line and net interest margin, stable asset quality as well as robust contribution from associates, ” it said.

“Overall, the adoption of sustainable practices in onboarding new customers provide stability in its asset quality as well as the potential benefit of lowering funding cost in the near future, ” it added.

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Hong Leong Bank , ESG , renewable energy


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