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Editor's PickAEON’s Islamic digital bank to incorporate carbon emission considerations in credit scoring...

AEON’s Islamic digital bank to incorporate carbon emission considerations in credit scoring methodology

ACS Digital is looking to use carbon scoring as part of its credit rating methodology, according to Raja Teh Maimunah Raja Abdul Aziz, CEO of the AEON Financial Service-led Islamic digital bank.

ACS Digital is currently figuring out how to implement carbon scoring as a supplementary element of its credit rating methodology, noting that going from zero to 100 is challenging. 

“If we can just get Scope 1 into the carbon calculator as a start, it’s good enough. That’s what we’re planning to do InshaAllah with our SME segments,” Raja Teh Maimunah shared with ISFI, an IFN Fintech sister publication.

Attempting to consider Scope 1, 2 and 3 emissions may prove over ambitions, the CEO explained.

The consideration of carbon emissions as part of a bank’s credit rating and risk management methodology is a practice that has been steadily gaining adoption.

In a recent working paper by the Bank of International Settlements, which is jointly owned by central banks across 63 jurisdictions, it was found that banks significantly decrease financing to firms with higher greenhouse gas emissions, suggesting that they screen out high emitters as part of their credit assessment exercise.

At an Islamic social finance panel session at Malaysia Digital Economy Corporation’s Islamic Digital Economy Conference, Raja Teh Maimunah noted that alternative credit rating methods are instrumental when attempting to assess the creditworthiness of the unbanked segment, which is one of ACS Digital’s mandates.

ACS Digital is one of two Islamic bank digital licensees of Bank Negara Malaysia licensed in April last year with the KAF Investment Bank-led consortium constituting its Islamic digital banking counterpart.

While Bank Negara Malaysia has mandated digital banking licensee awardees to commence operations within 24 months of obtaining their license, it was previously reported that ACS Digital is targeting to be operational in October this year.

The Malaysian finance minister originally approved the digital Islamic banking license to the ACS Digital consortium comprising AEON Credit, AEON Financial Service and MoneyLion.

In a recent development, MoneyLion officially pulled out of the consortium in May this year to focus on its US operations. The fintech company announced its intentions to exit the consortium earlier in September 2022, five months following the awarding of the Islamic digital banking license.

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