Introducing ESG Picks: Strategy

Indonesia
July 28, 2021
Strategy
Introducing ESG picks

by Erwan TEGUH │ T: (62) 21 3006 1720 │ E: erwan.teguh@cgs-cimb.com
 In our inaugural ESG focus note, we set forth our ESG selection criteria, which put emphasis on both
fundamental bottom-up thesis and strong ESG initiatives.
 Indonesian corporates generally scored well on the ‘S’ and ‘G’ pillars but fared poorly on the ‘E’ factor due
to lack of disclosures. The latter’s improvement shall drive 2022F ESG ratings for corporate Indonesia.
 Our key ESG picks are a micro focus bank (BBRI IJ, ADD, TP 4,900), a telco tower company (TOWR IJ,
ADD, TP 1,600), and a conglomerate that focuses on media/healthcare and tech (EMTK IJ, ADD, TP
3,200).
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. Powered by the EFA
AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. Platform
Indonesia │ Strategy │ July 28, 2021
What constitutes ESG investing?

• According to MSCI, ESG Investing is defined as “the consideration of environmental, social and governance factors alongside financial factors
in the investment decision-making process”.
• ESG investing is a term that is often used interchangeably with sustainable investing, socially responsible investing, mission-related investing,
and screening.
• MSCI has also identified three common investor objectives or motivations when considering an ESG strategy, namely:
o a) Integration: Investing with a systematic and explicit inclusion of ESG risks and opportunities with the intention to enhance
long-term risk-adjusted returns.
o b) Values: Investing in alignment with an organisation or individual's moral values and beliefs.
o c) Impact: Investing with the intention of supporting positive social or environmental benefits alongside a financial return.
The investor’s ESG objectives and approaches

Impact investing: Investing with the intention of generating measurable positive social or environmental benefits. Often interchangeable with "mission-
related investing", where investors align their investments with organisational values or to further philanthropic goals.
Thematic investing: Investing based on trends or structural shifts e.g. social, industrial and demographic trends.
Impact
Values Active ownership: Entering into a dialogue with companies on ESG issues and exercising both ownership rights and voice to effect change.
Integration
Bottom-up ESG integration: Investing with a systematic and explicit inclusion of ESG risks and opportunities in investment analysis.
Top-down ESG integration: Investing with a systematic and explicit inclusion of ESG factors in portfolio construction.
Best-in-class selection: Preferring companies with better or improving ESG profiles relative to sector peers.
Exclusionary or negative screening: Avoiding securities on the basis of an organisation or individual's values, standards and norms, or other ESG
considerations.
Values Socially-responsible investing (SRI): A traditional umbrella term that can be used to describe a values-based approach to investing, with an eye
towards reducing exposure to negative externalities. Also known as "ethical investing" or "norms-based investing."
Faith-based investing: Aligning investments with faith-based values. Often involves avoiding investments in companies whose business activities are
viewed as violating the teachings of a given faith. May also include aims to generate measurable social (or occasionally environmental) impacts.
SOURCES: CGS-CIMB RESEARCH, MSCI
2
The rise of sustainable investing is supported by demographic shift

• To understand the driver for sustainable investing trend from the investor side, we refer to EY’s study, as highlighted in its article “Sustainable
investing: the millennial investor” published in 2017. The study suggests that demand for sustainable investors is being driven, in part, by
millennials, who have a higher tendency to incorporate sustainability to their overall consumption behaviour as well as to their investment
decisions, compared to non-millennial investors.
• EY also estimates that millennials are poised to “receive more than US$30tr of inheritable wealth from the previous generation”, and therefore
should drive the demand for sustainable investments. While this study on millennial consumption and investing preference is based on trend
observed among US investors, a similar trend was also echoed by other surveys, notably the Deloitte Millenial Report published in 2019
which surveyed 13k millennials respondents over 42 countries (including Indonesia). This report summarised that “making positive impacts on
community/society” is among the priorities and aspirations of millennials, among other things (e.g. travel, being wealthy etc).
• We note that millennials and generation Z have already accounted for c.54% of Indonesia’s population based on its 2020 census, and as
such, could drive preference towards such investments in the future, just as what has already been seen in the US and other developed
economies.
Based on 2020 census, post-gen X now amounts for the majority c.65% of Indonesian populations
Pre-Boomer (born in
1945 and before), 2%
Post-Gen Z (born after Baby Boomer (born in
2013), 11% 1946-1964), 11%
Gen Z (born in 1997- Gen X (born in 1965-

2012), 28% 1980), 22%
Millennial (born in 1981-

1996), 26%
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
3
ESG-themed funds have seen significant inflows

• Sustainability-based investing has indeed grown over the past few years, with Bloomberg reporting that ESG and sustainability-themed
exchange-traded funds (ETFs) have experienced a boom, particularly after the outbreak of the Covid-19 pandemic. Based on Bloomberg
data, ESG and sustainability-themed equity ETFs recorded US$79bn of inflows in 2020, implying 84% CAGR over 2015-20, out of US$481bn
estimated inflows to US-listed ETFs.
• Bloomberg data also showed that Jan 2021 inflows into ESG and sustainability-themed equity ETFs were at a record high of c.US$19bn,
reportedly a result of investors betting on the Democrats’ clean sweep of the US government leading to more green policies.
ESG and sustainability themed ETFs still represent a small Inflows to ESG and sustainability-themed ETFs have been
US$ bn US$ bn
proportion of only c.4% of total ETFs AUM as of Jun 21 picking up pace, receiving c.15% out of total YTD ETF inflows
7,000 120
6,000 100
5,000 80
4,000
60
3,000
40
2,000
20
1,000
-
Jul-2014
Jul-2015
Jul-2016
Jul-2017
Jul-2018
Jul-2019
Jul-2020
Jan-2015
Jan-2016
Jan-2017
Jan-2018
Jan-2019
Jan-2020
Jan-2021
Oct-2014
Apr-2015
Oct-2015
Apr-2016
Oct-2016
Apr-2017
Oct-2017
Apr-2018
Oct-2018
Apr-2019
Oct-2019
Apr-2020
Oct-2020
Apr-2021
-
Jul-2014
Jul-2015
Jul-2016
Jul-2017
Jul-2018
Jul-2019
Jul-2020
Jan-2015
Jan-2016
Jan-2017
Jan-2018
Jan-2019
Jan-2020
Jan-2021
Oct-2014
Apr-2015
Oct-2015
Apr-2016
Oct-2016
Apr-2017
Oct-2017
Apr-2018
Oct-2018
Apr-2019
Oct-2019
Apr-2020
Oct-2020
Apr-2021
-20
-40
ESG and sustainability themed ETFs AUM Other ETFs AUM ESG-themed equity ETF total flows Total flows to other ETFs
SOURCES: CGS-CIMB RESEARCH, BLOOMBERG
4
The de-carbonisation initiative

• Climate change has arguably been one of the hottest global issues of the 21st century. Climate change has been linked to numerous potential
ecological, physical and health impacts, including extreme weather, rising sea levels, altered crop growth patterns, and disrupted water
systems. With climate change being a global issue, coordinated efforts to slow down and, hopefully, eventually halt the rise in global
temperature has become a priority. The initiative reached a landmark with 196 state parties convening at the United Nations Climate Change
Conference of the Parties (COP21) in 2015 and signed the Paris Agreement, a legally binding international treaty on climate change that
came into force in Nov 2016. The Agreement works on a 5-year cycle of increasingly ambitious climate action carried out by countries. By
2020, countries are required to submit their plans for climate action known as nationally determined contributions (NDCs) in which countries
communicate action plans to reduce greenhouse gas (GHG) emissions in order to reach the goals of the Paris Agreement.
• Sadly, only 97 countries have submitted their NDCs so far. All these commitments shall be reviewed in the upcoming UN Climate Change
COP26, which will take place from 31 Oct to 12 Nov 2021 in Glasgow. The recent extreme weather that caused major floods in Europe and
China, heat wave that caused wild fires in the US, mudslides in India, highlights the urgency to accelerate efforts to reduce carbon emissions.
Key points to the Paris Agreement
Target year Points
Temperatures 2100  Hold the increase in the global average temperature to “well below 2°C” above “pre-industrial levels”.
 Pursuing efforts to limit the temperature increase to “1.5°C” above “pre-industrial levels”.
Emission goals 2050  Aim for greenhouse gases emissions to peak “as soon as possible”.
 From 2050: rapid reductions to achieve a balance between emissions from human activity and the amount that can be captured by greenhouse
gas “sinks and reservoir”.
Financing 2020 – 2025  Rich countries must collectively provide US$100bn annually from 2020 as a “floor”.
 Amount to be updated by 2025.
 Make all finance flows low carbon and climate resilient.
Differentiation  Developed countries should continue “to take the lead” by undertaking absolute economy-wide reduction targets.
 Developing nations countries should continue enhancing their mitigation efforts and are encouraged to move toward economy-wide targets over
time in the light of different national circumstances.
Burden sharing  Developed countries must provide financial resources to help developing countries.
 Other countries are invited to provide support on a voluntary basis.
 Capacity building mechanism to support developing countries established.
Review 2018, 2020,  Facilitative dialogue in 2018, revised Nationally Deterministic Contributions in 2020.
mechanism 2023  Enhanced transparency framework.
 A review every five years. First mandatory world review: 2025.
 Each review will inform countries to “update and enhance” their pledges.
Climate-related  Support adaptation, resilience and low emission development, to ensure food security.
damage  Vulnerable countries have won recognition of the need for “averting, minimising and addressing” losses suffered due to climate change.
SOURCES: UNITED NATIONS CLIMATE CHANGE SECRETARIAT, AGENCE FRANCE-PRESSE
5
Indonesia may impose carbon tax by 2022F

• More countries, regions, cities and companies are establishing carbon neutrality targets to meet their NDC. In conjunction with this, countries
are increasingly proposing mechanisms to control their GHG emissions by either setting carbon tax and/or Emission Trading Scheme (ETS).
This would nevertheless imply higher business costs for GHG emitters (which would particularly hit large polluters e.g. cement and
industrials), which in turn could be passed on (either partially or fully) to their customers, individuals or other businesses. The introduction of
such carbon pricing scheme may be inflationary though likely a one-off.
• Indonesia has proposed to impose a carbon tax on individuals and businesses that purchase goods containing carbon (although we believe
there would be minimum threshold on the carbon content as all organic things contain carbon) and/or engage in activities that produce carbon
emissions, at Rp75 per kg of CO2 or equivalent unit by 2022F. Emissions from the use of fossil fuels, such as coal, diesel and gasoline, could
be targeted, and there could be a focus on "carbon-intensive sectors such as the pulp and paper, cement, electricity generation and
petrochemical industries."
• While this will surely lead to a heated debate and, hence, likely lead to both a more diluted carbon tax and/or a more relaxed implementation
timeline, it will be a wake-up call for corporate Indonesia, necessitating the need to introduce carbon emission planning in their business plans
if they have not already done so. Those with solid plans shall better manage any financial impact, and could even be rewarded by investors.
SOURCES: I4CE INSTITUTE FOR CLIMATE ECONOMICS WITH DATA FROM ICAP, WORLD BANK, GOVERNMENT OFFICIALS AND PUBLIC INFORMATION
6
Case study: BlackRock’s Carbon Transition Readiness ETF

• In Apr 2021, fund management firm BlackRock launched its BlackRock US Carbon Transition Readiness ETF (LCTU) which attracted total
inflow of US$1.25bn on its first day – Bloomberg hailed this as the “biggest launch in the ETF industry’s three decades of history”.
• Simultaneous to LCTU’s launch, BlackRock also launched a sister fund that invests in non-US companies – the BlackRock World ex US
Carbon Transition Readiness ETF (LCTD) – attracting US$475m from investors, also one of the largest new ETFs ever launched. The LCTU
and LTCD seek to outperform the price and yield performances of Russel 1000 index for the former, and MSCI All World ex-US index for the
latter, while optimising for Low Carbon Economy Transition Readiness (LCETR) scores criteria.
• The LCETR is a proprietary scoring issued by BlackRock Fund Adviser (BFA) research, which utilises BFA’s proprietary LCETR strategy to
overweight, relative to the underlying index, issuers that BFA believes are best positioned to benefit from the transition to a low-carbon
economy, and vice versa.
• BFA assigns a transition readiness score to each issuer by aggregating its research-driven insights across “five pillars” (which are fossil fuels,
clean technology, energy management, waste management, and water management) and weights the five pillar scores for each industry
according to what it believes are their relative importance to that industry. The final score for each issuer is then used to determine whether
the fund should overweight or underweight that particular industry, based on the issuer’s score in comparison to other issuers in the peer
industry.
BlackRock’s LCTU and LCTD: types of analyses conducted for each pillar
Fossil fuels Analyses an issuer’s involvement in the extraction, refinery, generation and ownership of carbon emitting
energy.
Clean technology Analyses an issuer’s involvement in renewable energy, energy efficiency, green building and low carbon
transport.
Energy management Analyses an issuer’s energy use, mix, efficiency and indirect emissions through electricity consumption.
Water management Analyses an issuer’s water consumption, withdrawal, efficiency, physical stress and recycling practices.
Waste management Analyses an issuer’s waste generation, recycling, and toxic emissions management.
SOURCES: SEC, BLACKROCK
7
Indonesian corporates need to step up their ESG disclosures

• Given the popularity of ESG investing, there have been a number of rating agencies that use ESG-related disclosures by companies as
essential input to quantify their ESG scores. Indonesian corporates generally scored well on the Social and Governance pillars, but fared
poorly on Environmental issues. Our examination on MSCI Indonesia index member companies found that in 2020, out of the 22 companies,
18 issued sustainability report, but only 13 companies disclosed their greenhouse gas emissions, among many environmental-related
disclosure metrics. This, in our view, has led to their relatively low scores on the Refinitiv’ environmental pillar, in turn dragging down the
overall ESG scoring of listed companies in Indonesia. That said, their scores have generally been improving over the past 5 years (please
refer to p. 12-15) in particular for the banking and coal sectors.
Refinitiv ESG scoring on Indonesian listed companies
Ticker Company ESG Combined ESG Score Environmental Environmental Social Pillar Social Pillar Governance Governance ESG ESG Controversies
Score (Latest) Grade (Latest) Pillar Score Pillar Score Score (Latest) Score Grade Pillar Score Pillar Score Controversies Score Grade
(Latest) Grade (Latest) (Latest) (Latest) Grade (Latest) Score (Latest) (Latest)
INCO Vale Indonesia 82.38 A- 66.38 B 92.38 A+ 88.92 A 100.00 A+
BBRI Bank Rakyat Indonesia (Persero) 80.46 A- 81.13 A- 76.78 A- 85.27 A 94.06 A+
BBCA Bank Central Asia 79.16 A- 59.99 B 81.48 A- 83.64 A 100.00 A+
BUMI Bumi Resources 78.06 A- 73.23 B+ 80.34 A- 82.57 A- 100.00 A+
BBNI Bank Negara Indonesia (Persero) 77.59 A- 51.31 B- 89.70 A 71.42 B+ 100.00 A+
BMRI Bank Mandiri (Persero) 76.63 A- 30.41 C- 81.81 A- 87.99 A 100.00 A+
ITMG Indo Tambangraya Megah 75.97 A- 76.19 A- 77.54 A- 74.22 B+ 100.00 A+
UNVR Unilever Indonesia 74.89 B+ 82.87 A- 76.96 A- 62.87 B 100.00 A+
JSMR Jasa Marga (Persero) 73.25 B+ 73.21 B+ 78.99 A- 64.60 B 100.00 A+
EXCL XL Axiata 72.00 B+ 45.02 C+ 76.47 A- 83.71 A 100.00 A+
ANTM Aneka Tambang 69.79 B+ 68.71 B+ 69.17 B+ 72.36 B+ 100.00 A+
PGAS Perusahaan Gas Negara 67.75 B+ 53.87 B- 81.04 A- 67.26 B+ 100.00 A+
HMSP Hanjaya Mandala Sampoerna 65.74 B 44.70 C+ 73.56 B+ 75.38 A- 100.00 A+
UNTR United Tractors 62.76 B 47.80 C+ 83.35 A 64.35 B 100.00 A+
KLBF Kalbe Farma 61.99 B 66.96 B+ 55.24 B- 68.42 B+ 100.00 A+
BDMN Bank Danamon Indonesia 61.20 B 16.49 D 60.56 B 79.98 A- 100.00 A+
BBTN Bank Tabungan Negara (Persero) 57.50 B- 31.88 C- 88.57 A 24.95 D+ 100.00 A+
ADRO Adaro Energy 56.48 B- 59.47 B 48.11 C+ 60.05 B 93.75 A+
SMGR Semen Indonesia (Persero) 55.00 B- 62.78 B 47.89 C+ 51.41 B- 100.00 A+
PTBA Bukit Asam 53.23 B- 53.62 B- 91.85 A+ 17.29 D+ 100.00 A+
BRPT Barito Pacific 50.41 B- 46.98 C+ 57.07 B- 45.19 C+ 100.00 A+
SOURCES: CGS-CIMB, REFINITIV
8
We believe the ESG scores of Indonesian corporates will improve markedly in 2022F
• On top of the low environmental disclosure level among JCI’s 729 members, we note that the Refinitiv ESG scoring is available for only 45
companies. Investible issue aside, the low ESG rating availability among listed firms drive home the point that Indonesian corporates need to
step up their ESG disclosures for agencies such as Refinitiv to keep scores.
• If Indonesia proceeds with a carbon tax scheme in 2022, companies shall be forced to draft plans. Given the low ESG rating levels of
Indonesian corporates, their overall scores should improve markedly by improved disclosures alone in 2022F, though better adherence to
environmental issues ultimately would be required for corporate Indonesia’s ESG ratings to improve, at least on the ‘Environmental’ part.
Refinitiv ESG scoring on Indonesian listed companies (continued)
Ticker Company ESG Combined ESG Score Environmental Environmental Social Pillar Social Pillar Governance Governance ESG ESG Controversies
Score (Latest) Grade (Latest) Pillar Score Pillar Score Score (Latest) Score Grade Pillar Score Pillar Score Controversies Score Grade
(Latest) Grade (Latest) (Latest) (Latest) Grade (Latest) Score (Latest) (Latest)
AKRA AKR Corporindo 49.67 C+ 32.83 C- 54.38 B- 65.98 B 100.00 A+
INTP Indocement Tunggal Prakarsa 49.59 C+ 35.56 C 64.30 B 53.38 B- 100.00 A+
ISAT Indosat 47.18 C+ 8.76 D 57.62 B- 55.71 B- 100.00 A+
TLKM Telkom Indonesia (Persero) 45.44 C+ 17.05 D+ 62.17 B 33.65 C 100.00 A+
LPPF Matahari Department Store 43.38 C+ 22.73 D+ 67.13 B+ 36.99 C 100.00 A+
ASII Astra International 42.35 C+ 36.38 C 49.05 C+ 39.26 C 100.00 A+
LPKR Lippo Karawaci 40.87 C 10.52 D 52.95 B- 56.93 B- 100.00 A+
ICBP Indofood CBP Sukses Makmur 36.87 C 38.33 C 33.60 C 40.91 C 46.34 C+
AALI Astra Agro Lestari 35.97 C 41.86 C+ 44.28 C+ 15.12 D 100.00 A+
INDF Indofood Sukses Makmur 35.64 C 36.21 C 47.36 C+ 14.76 D 100.00 A+
BSDE Bumi Serpong Damai 34.95 C 32.16 C- 37.90 C 34.40 C 100.00 A+
WSKT Waskita Karya (Persero) 34.79 C 13.67 D 63.55 B 24.72 D+ 100.00 A+
SCMA Surya Citra Media 32.62 C- 0.00 D- 28.44 C- 49.01 C+ 100.00 A+
TKIM Pabrik Kertas Tjiwi Kimia 30.16 C- 12.84 D 50.46 B- 37.34 C 100.00 A+
SMRA Summarecon Agung 28.36 C- 5.36 D- 21.71 D+ 57.93 B- 100.00 A+
TOWR Sarana Menara Nusantara 27.35 C- 2.45 D- 25.73 C- 49.70 C+ 100.00 A+
INKP Indah Kiat Pulp & Paper 27.31 C- 37.92 C 25.14 C- 9.89 D 100.00 A+
PWON Pakuwon Jati 26.97 C- 13.61 D 49.45 C+ 15.16 D 100.00 A+
TBIG Tower Bersama Infrastructure 25.27 C- 19.39 D+ 27.94 C- 24.42 D+ 100.00 A+
BMTR Global Mediacom 20.57 D+ 0.00 D- 8.60 D 43.19 C+ 100.00 A+
ACES Ace Hardware Indonesia 18.81 D+ 19.22 D+ 16.78 D+ 20.87 D+ 100.00 A+
GGRM Gudang Garam 18.72 D+ 9.33 D 22.23 D+ 22.96 D+ 100.00 A+
CPIN Charoen Pokphand Indonesia 15.89 D 0.00 D- 13.54 D 37.41 C 100.00 A+
MNCN Media Nusantara Citra 14.69 D 0.00 D- 21.47 D+ 10.67 D 100.00 A+
SOURCES: CGS-CIMB, REFINITIV
9
CGS-CIMB Indonesia’s ESG list selection methodology

• We initiated a new ESG pick list that includes 15 stocks that are rated Add by CGS-CIMB analysts and have a positive ESG profile and
momentum vs. their peers.
• Our structured process includes the stocks’ weighting in the JCI, while incorporating proprietary inputs based on fundamental stock ratings,
liquidity, leverage, and company ESG activity, with momentum of changes to CGS-CIMB fundamental ratings and/or ESG initiatives over
time. The funnel below depicts the selection process we utilise to short-list 63 Indonesian companies covered by CGS-CIMB research, and
fine-tune the list down to 15 names.
CGS-CIMB Indonesia’s ESG top picks: selection process
Compare ESG profiles and

momentum against peers and
Filter out stocks with relatively
All CGS-CIMB Indoneisia Stocks rated ADD by CGS-CIMB overall universe according to
high leverage, negative earnings,
covered stocks Indonesia analysts company disclosures, multiple
market, cap, etc.
rating agencies scores and
reports, etc.
Equity strategists apply a macro

Benchmark the stock weightings CGS-CIMB analyst input on ESG
view - could change
and market cap ranges against profile of companies being
sector/industry, market cap, and
the JCI considered
cyclical vs defensive weightings
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
10
Introducing our Indonesia ESG list with top three pick: BBRI, TOWR and EMTK
• Using the methodology described in the previous page, we also filter our screen to include companies that are either a) already ESG leaders
within their respective sectors or b) expected to have positive ESG momentum as a result of improved company disclosure or management
actions.
• We introduce our Indonesia ESG list, with BBRI (ESG leader in bank, with new focus serving ultra-micro lending segment as key catalyst)
TOWR (leading private telco tower operator which has stepped up its ESG disclosure recently; been included in IDX ESG Leaders in Dec
2020 and was assigned ESG rating of BB by MSCI in Jan 2021) and EMTK (key business focus in media, MSME, healthcare and micro
lending should boost its ESG scores and momentum) as our top picks. Additionally, we also include ESG leaders in our list: BBCA and BMRI
in the banking sector, UNTR and ADRO in the mining sector (which have made concertedly efforts to diversify from fossil fuel exposure and
detailed their sustainability efforts), along with companies we believe would benefit from an improvement in ESG disclosures, namely ARTO,
EMTK, TBIG, SMGR, SILO, MPPA, HEAL, MYOR and ASSA.
Target Refinitiv ESG Recurring ROE

Price Core P/E (x) P/BV (x)
Price Score Market Cap 2-year EPS (%)
Company Ticker Recom.
(local (local (US$ m) CAGR (%)
Latest FY2021 FY2022 FY2021 FY2022 FY2021 FY2022
curr) curr)
High conviction
Bank Rakyat Indonesia BBRI IJ ADD 3,800 4,900 A- 32,335 15.3 12.9 39.3% 2.05 1.90 14.3% 15.2%
Elang Mahkota Teknologi EMTK IJ ADD 2,620 3,200 n.a. 11,063 45.2 43.7 11.9% 6.87 6.48 20.2% 15.3%
Sarana Menara Nusantara TOWR IJ ADD 1,525 1,600 C- 5,368 26.0 23.2 5.5% 6.68 5.75 27.4% 26.6%
18.8 16.1 32.8% 2.64 2.45 15.3% 15.7%
ESG leaders / positive momentum
Bank Central Asia BBCA IJ ADD 30,025 36,200 A- 51,078 25.0 21.1 13.6% 3.72 3.37 15.4% 16.7%
Bank Mandiri BMRI IJ ADD 5,825 6,700 A- 18,756 10.6 8.4 37.6% 1.45 1.33 13.5% 16.5%
Bank Jago ARTO IJ ADD 17,400 20,000 n.a. 16,636 1467.2 372.7 na 29.06 27.61 3.1% 7.6%
United Tractors UNTR IJ ADD 20,000 24,600 B- 5,147 9.0 8.9 18.4% 1.14 1.06 13.3% 12.4%
Tower Bersama Infrastructure TBIG IJ ADD 3,100 3,350 C- 4,846 41.8 38.0 21.5% 7.22 6.80 17.5% 18.4%
Semen Indonesia SMGR IJ ADD 8,375 15,900 B- 3,428 15.7 13.3 24.7% 1.38 1.29 9.1% 10.1%
Mayora Indah MYOR IJ ADD 2,280 2,900 n.a. 3,517 21.6 17.8 18.0% 4.03 3.46 19.9% 21.0%
Adaro Energy ADRO IJ ADD 1,275 2,000 B- 2,814 7.0 5.5 49.4% 0.71 0.67 10.3% 12.6%
Medikaloka Hermina HEAL IJ ADD 5,800 6,700 n.a. 1,192 17.6 17.5 44.4% 5.03 4.15 33.5% 26.6%
Siloam International Hospitals SILO IJ ADD 9,675 9,100 n.a. 1,085 54.1 35.8 94.6% 2.61 2.48 4.8% 7.1%
Adi Sarana Armada ASSA IJ ADD 2,560 2,800 n.a. 636 62.5 36.3 65.7% 6.11 5.23 10.3% 15.5%
Matahari Putra Prima MPPA IJ ADD 925.0 1,700 n.a. 481 na na na 13.43 14.42 -56.8% -7.1%
20.0 16.9 25.8% 2.70 2.47 13.6% 15.3%
11
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS , REFINITIV
Refinitiv ESG rating for the banking sector has shown the strongest positive momentum
100
90
80
70
60
50
40
30
20
10
0
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Environmental Pillar Score (Weight: 14.4%) Social Pillar Score (Weight: 49.6%) Governance Pillar Score (Weight: 36.0%) ESG Combined Score
BBRI BBCA BMRI BBNI BBTN
SOURCES: CGS-CIMB RESEARCH, REFINITIV
12
Refinitiv ESG rating for consumer staples has improving trend, albeit still scoring poorly
Refintiv ESG score

100
90
80
70
60
50
40
30
20
10
0
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
HMSP GGRM CPIN ICBP INDF
13
Refinitiv ESG rating for the telco sector has generally been poor on Environmental pillar
Refintiv ESG score

100
90
80
70
60
50
40
30
20
10
0
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
EXCL ISAT TLKM TOWR TBIG
14
Refinitiv ESG rating for coal mining sector has been lifted by ADRO’s significant improvement
Refintiv ESG score

100
90
80
70
60
50
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30
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10
0
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
ADRO PTBA ITMG UNTR
15
ESG in a nutshell: BBRI

• Bank Rakyat Indonesia (BRI) was ranked A- in its 2019 ESG combined score by Refinitiv, stable from the previous year. BRI did well on all
the three pillars, with an A rank for its Governance and A- for its Social and Environment pillar.
Keep your eye on Implications

Microloans can improve financial inclusion in Indonesia, while at the same time improve BRI’s
Microloans growth overall NIM. BRI aims to have its micro segment contribute at least 50% to its total portfolio in the
medium term.
ESG highlights Implications
BRI continues to take new sustainable business opportunities that are in
Refinitiv ranked BRI A- for the Environmental pillar in 2019, the highest among peers. We believe
line with the nation’s financial inclusion and financial literacy
that with the company putting in a greater focus on green financing, its ESG score will improve
programmes by strengthening the ranks of its BRILink agents to 504,233
going forward.
personnel spread throughout the archipelago.
Trends Implications
Refinitv’s ranking for BRI improved from B+ in 2017 to A- in 2019. It
continues to perform well on all the three pillars. The rating for
We do not factor in a premium/discount for ESG in our fundamental valuations. In our view, the
Governance and Environment improved from B+ and B- in 2017 to A
company does not yet have a clear roadmap on how to improve its ESG scores going forward.
and A- in 2019, respectively. Meanwhile, the bank maintained an A-
rating for the Social pillar from 2017 to 2019.
16
ESG in a nutshell: TOWR

• Sarana Menara Nusantara (TOWR) was ranked C- in its 2019 ESG Combined Score by Refinitiv, with an ESG score of 25.71 and
Governance as its highest-rated pillar. The company has been included in IDX ESG Leaders since Dec 2020 and was assigned an ESG
rating of BB by MSCI in Jan 2021.

The tower business is closely related to the social aspects of ESG as some towers are erected in
residential areas. Frictions may happen, and the resulting negative news may adversely affect the
share price movement of tower companies, although tower companies are determined to resolve
Tower rollout operations with community awareness the issues as soon as it arises.
TOWR conducts regular training for its field workers, particularly on the aspects related to safety
and the environment.

TOWR is committed to adding female personnel to its management to
TOWR has improved its employee gender mix which we believe would improve its governance
improve its gender diversity, given that its field teams are predominantly
pillar scoring. About one-third of its employees are female as at end-2020.
male due to the nature of the work.
Trends Implications
2019 was the first year Refinitiv rated TOWR. TOWR’s inclusion to IDX
ESG Leaders and MSCI ESG assignment shall contribute to higher ESG We expect TOWR's ESG scoring to improve, especially in governance aspects, in future reporting.
scoring and rating.
17
ESG in a nutshell: EMTK

• As the largest shareholder of e-commerce company Bukalapak, Elang Mahkota Teknologi (EMTK) has enabled at least 7m small businesses
and lifted the daily income of the owners. The recent release of its sustainability report highlights its drive to be ESG-compliant. The company
also received a decent 74.04 in RSM Indonesia’s good corporate governance (GCG) assessment 2019.

ESG evaluation when making future business acquisitions, including the Acting as tech holding company, EMTK will have to select high-quality managerial teams for its
managerial teams, emphasises the sustainability of the business and its businesses (with shareholders’ approval). Mishandling one of the businesses may impact the
customer base. In addition, its media company is obliged to create valuation of the business and EMTK’s.
quality content for general public.

EMTK received a 74.04 score for good corporate governance (GCG) by We believe EMTK still has plenty of room to improve on its GCG score. Meanwhile, though higher
RSM Indonesia, a domestic ranking body, according to ASEAN GHG emission and energy consumption may not be avoidable as the company acquires new
Corporate Governance Scorecard (ACGS) Assessment 2019. The businesses, we think it would minimise its overall emission and energy consumption growth.
company has also pledged to reduce its greenhouse gas (GHG)
emission and energy consumption (no timeline given by the company).
Trends Implications
2020 marked the first time the company released a sustainability report. The release of a sustainability report reflects the company’s intention to be ESG-compliant. We
However, it disclosed that its GCG assessment improved to 74.04 in expect EMTK to continue to improve its ESG standards.
2020 from 61.33 in 2019. Electricity consumption decreased to
27.64MW in 2020 from 28.78MW in 2019 and emission decreased to
24.24 tCO2 eq in 2020 from 25.17 tCO2 eq in 2019.
18
ESG in a nutshell: SILO

• Siloam International Hospitals (SILO) has continuously incorporated ESG initiatives in its operational activities. The company also expressed
its commitment to support three of UN Sustainable Development Goals (SDGs) i.e. good health and well-being, industry, innovation and
infrastructure, and partnership for the goals. SILO’s ESG performance is slightly better than other hospital players in Indonesia, especially its
efforts in waste management, energy conservation, and employee diversity. The company’s major improvements from year to year are, in our
view, derived from its Environmental and Governance aspects.

The pandemic has put the challenge on hospitals on how to properly treat medical waste,
especially those contaminated with the virus. SILO has adapted sufficient procedures in disposing
Covid-19 medical waste management
Covid-19 related wastes by separating them from normal medical wastes, double wrapping,
spraying disinfectant to prevent exposure, and incinerating them through a licensed contractor.

SILO has placed a strict monitoring system for its waste and water management as well as
employs energy conservation initiatives in its hospitals to minimise its carbon footprint. In 2020, it
SILO’s performance in Environmental and Governance aspects are managed to decrease the water consumption of each of its hospital by 17% from the previous year.
better than peers while its Social aspect is in line Currently, six women sit on its Board of Directors/Commissioners i.e. 40% of the members, higher
than its peers. In addition, SILO is seeing a declining trend of employee turnover rate since 2019,
implying that it provides a good environment for employees.
Trends Implications
We believe this trend will persist in the future as more players implement green initiatives in their
Hospital players have been trying to reduce their energy consumption as
operations. Thus, we believe SILO will likely to continue increasing its energy efficiency to lower its
one of their green initiatives
operating expense going forward.
19
ESG in a nutshell: MPPA

• Matahari Putra Prima (MPPA) has been incorporating many ESG initiatives in its operational activities, though it lags behind some of its retail
peers that are included in the ESG Leaders Index (ACES, ERAA, MAPI, RALS). Its ESG performance, however, is similar to other
supermarket and hypermarket chains in Indonesia. Its major improvement from year to year mainly came from environmental aspects, while
its governance in terms of gender diversity still lags behind peers, in our view. We think changes in the composition of its Boards of Directors
and Commissioners, accompanied with better ESG disclosures, will help it improve its ESG scores.

As MPPA sells fresh products, it has to comply with requirements imposed by public health
authorities. Currently it holds the ISO 22000:2018 certification for its Food Safety Management
System and SNI 99001:2016 for its Halal Management System, proving its compliance to food
Food safety management
safety protocols; these certifications are renewed yearly. We believe that as long as the company
keeps updating its protocols to comply with the latest versions, it can maintain the same credibility
and keep the defect rate of its fresh products to a minimal level so as not to hamper its profitability.
Some local governments in areas which MPPA operate prohibit shops from providing plastic
shopping bags. The company complies with the regulation in those areas while charging customers
Rp200/bag in regions that still allow paid plastic shopping bags. The information is clearly
Plastic bag restriction
communicated to customers through signages and it continues to support the nation’s effort to
reduce plastic shopping bag usage by providing alternatives e.g. cartoon box and promoting
attractive reusable shopping bags to provide the same convenience to customers.

MPPA has adapted several eco-friendly practices in its operations. Its energy saving programme
MPPA’s performance in Environmental and Social aspects is in line with
has resulted in a 30% reduction in its overall electricity usage between 2014 and 2020. It also sold
its peers.
at least 401k reusable shopping bags to customers in 2020 alone.
Among the retailer companies under our coverage, MPPA has one of the lowest gender diversities
Its Boards of Directors and Commissioners lack gender diversity. The in its Board of Directors and Board of Commissioners – all nine members are male. In addition, one
latter also has a member who is related to a major shareholder. of its Commissioners, John Riady, is the son of James Riady who indirectly owns 18% of MPPA
shares through MLPL as of May 2021.
Trends Implications
We think that this trend will continue going forward as government put heavier attention in domestic
Retailers have been trying to reduce the use of shopping plastic bags as plastic waste. Thus, we believe MPPA will keep reducing its plastic shopping bags usage which
their green initiatives and to comply with government’s regulation could lower some costs while adding more revenue in selling reusable bags or charging plastic
shopping bags.
20
ESG in a nutshell: BBCA

• BCA was ranked A- in its 2019 ESG combined score by Refinitiv, a slight improvement from the previous year. BCA did well on its
Governance and Social pillar and may need to work more on the Environment pillar.

BCA’s loan-to-deposit ratio (LDR) is the lowest within our banking coverage universe; this should
Economic recovery trends put it in a good position to capture any improvements in loan demand as the nation’s economy
recovers.
The company actively participates in implementing sustainable financing
Refinitiv gave BCA a B score for the environmental pillar in 2019. We believe that given the
as part of its efforts towards achieving sustainable development in
company’s initiative in putting greater focus on green financing, its ESG scores will improve going
Indonesia. In order to achieve its sustainable development goals, the
forward.
company has developed a Sustainable Financing Action Plan (RAKB).
Trends Implications
Refinitv’s ranking for BCA improved from B+ in 2017 to A- in 2019. It
continues to perform well on all the three pillars. The rating for
Governance and Environment improved from B+ and B- in 2018 to A
and B in 2019, respectively. Meanwhile, it maintained an A- rating for the
social pillar.
21
ESG in a nutshell: BMRI

• Bank Mandiri (BMRI) was ranked A- in its 2020 ESG combined score by Refinitiv, slightly improved from 2019. Mandiri did well on the
Governance and Social pillar and may need to work more on its Environment pillar.

BMRI is a corporate-focussed bank; during economic recovery, BMRI’s loan growth should recover
Economic recovery trends
the fastest, in our view.
One of the focuses of BMRI’s sustainability shown by funding Refinitiv ranked BMRI C- for the Environmental pillar in FY20, slightly improved from FY18. We
environmentally friendly programs or projects. In addition, BMRI also believe that the company’s initiative in putting greater focus on green financing as well as more
encourages debtors to participate in PROPER as one of the benchmarks disclosures in this area could lead to a better score going forward. We believe that a higher ESG
for environmental management performance score could be well received by investors.
Trends Implications
Refinitv’s ranking for BMRI improved from B in FY18 to A- in FY20. It We do not factor in a premium/discount for ESG in our fundamental valuations. In our view, the
continues to perform well on the Governance pillar, with its rating company does not yet have a clear roadmap on how to improve its ESG score going forward.
improved from B+ in FY19 to A in FY20. The Social pillar score was
stable at A- from FY19 to FY20. Meanwhile, the Environmental pillar
score remained low at C-, although slightly improved from D in FY18.
22
ESG in a nutshell: ARTO

• Bank Jago (ARTO) is committed to play a part in improving Indonesia’s financial inclusion by disbursing loans to underserved and unbanked
populations. The bank aims to empower the lower- to middle-class economic groups in Indonesia.

At this juncture, Bank Jago’s share price performance will depend on its execution in acquiring new
Customer acquisition numbers customers and creating customer stickiness. As a pure digital bank, customer portfolio growth will
be one of the most important aspects to its valuations in the early stages of operations.
Bank Jago’s efforts to develop a digital business ecosystem with its
partners have also supported the Sustainable Finance programme that We believe the company’s initiative in putting greater focus on financial inclusion will improve its
Indonesia’s Financial Services Authority (OJK) and banking industry ESG score going forward.
have been striving towards in recent years.
Trends Implications
Bank Jago’s new shareholders took over in late-2019s and have just
started its digital banking operations in 2021. Hence, we see no
significant ESG-related yoy trends.
23
ESG in a nutshell: TBIG

• Tower Bersama Infrastructure (TBIG) was ranked C- in its 2019 ESG Combined Score by Refinitiv, with an ESG combined score of 25.27,
above its average ESG score of 17.30 over the previous 4 years, indicating strong improvement. While TBIG may remain the lowest-ESG-
rated among Indonesian telcos, it has plenty of room for improvements, particularly in its weakest pillar, Governance.

The tower business is closely related to the social aspect of ESG as some towers are erected in
residential areas. Frictions may happen, and the resulting negative news may adversely affect the
Tower rollout operations with community awareness
share price movement of tower companies, but TBIG is determined to resolve the issues as soon
as possible. TBIG stated that it has resolved all complaints, according to its 2020 Annual Report.
Despite its lease additions of 3k in 2020, the company has been able to
reduce the energy consumption to 3.37 gigajoule/bn Rp from 5.74
Lower energy usage may contribute to future cost savings and sustainable EBITDA margin.
gigajoule/bn Rp in 2019. Emissions intensity also dropped to 0.41
tCO2e/bn Rp in 2020 from 0.67 tCO2e/bn Rp in 2019.
Trends Implications
TBIG’s ESG score has improved to C- by 2019 from previously D+. Its
Governance is the weakest ESG pillar for TBIG. Improvement in governance aspect may lead to
Social pillar improved to C- in 2019 from D+ in 2018. Rating for its
higher ESG rating.
Environmental pillar also improved to D+ in 2019 from D- in 2018.
24
ESG in a nutshell: HEAL

• Medikaloka Hermina (HEAL) has been incorporating decent ESG initiatives in its operational activities. It recently announced a 5-year
sustainability strategic plan. In addition, all its hospitals have adopted the green hospital concept. Overall, HEAL’s ESG performance is similar
to other listed hospital players in Indonesia, although none are included in the ESG Leaders Index.

The pandemic has put a challenge how hospitals properly treat their medical wastes, especially
Covid-19 waste management. those contaminated with the virus. Unfortunately, HEAL has not disclosed its process in disposing
Covid-19 related wastes.
All its hospitals have implemented the green hospital concept. This has led to a significant
HEAL’s performance in environmental and social aspects are in line with
reduction in its environmental footprint (e.g. waste, energy use, water use, and GHG emission).
its peers; its Boards of Directors and Commissioners lack gender
Among the hospital players under our coverage, HEAL has one of the lowest gender diversities in
diversity.
its Boards of Directors and Commissioners – all 11 members are male.
Trends Implications
We believe this trend will persist in the future as environmental issues are becoming more
Hospital players have been trying to reduce their energy consumption as
important to stakeholders. Therefore, the company will likely to continue improve its energy
part of their green initiatives.
efficiency, in turn reducing its operating expenses.
25
ESG in a nutshell: SMGR

• Semen Indonesia (SMGR) scored B- on its latest ESG Combined Score by Refinitiv and is ranked among the top 25% of its peer group. The
company scores very well on the Environmental front, is slightly ahead of peers on the Social pillar, and in line with peers on the Governance
pillar – according to Refinitiv’ scoring. The strong improvement in SMGR’s environmental score over the past two years was driven by: i)
lower total waste per revenue and higher waste recycled ratio, and ii) new water-conservation technology from its acquisition of Holcim
Indonesia. These have propelled SMGR ahead of its peers on the environmental front and, thus, its ESG Combined Score. In addition,
Sustainalytics, a Morningstar company, sees SMGR as having medium ESG risk, and ranks SMGR at no.15 out of 124 construction material
companies worldwide on its ESG score.

SMGR plans to lower its scope-1 emissions to 595kg CO2 per tonne of If executed well, we believe the market could assign higher P/E multiples to the company; and ESG
cement equivalent by 2024F or around 16% from “baseline” funds could include the company into their core ESG portfolio.
SMGR plans to lower its clinker ratio further from 71% in FY20 to 67%
by 2024F.
SMGR plans to increase its thermal substitution rate from 4% in FY20
to 20% by 2024F.
SMGR plans to increase its alternative fuel by more than 7x by 2024F
from the current 248kt.
According to Refinitiv’ scoring, SMGR is way ahead of its peers on the Further evident improvement on the environmental and governance fronts should help boost
environmental front, slightly ahead of its peers on the social front, and investors’ confidence on the company, in our view.
in line with peers on the governance front.
Trends Implications
SMGR has been able to improve its Refinitiv’s 2020 environmental We have not applied any premium/discount on ESG in our fundamental valuations. However, as
pillar rating to B, up three notches from C in 2018. Its social and the company continues to build on its ESG efforts, we believe these could lead to lower perceived
governance pillars were maintained at C+ and B-, respectively. ESG risk among investors and the investment community.
26
ESG in a nutshell: MYOR

• Mayora Indah (MYOR) has been incorporating decent ESG initiatives throughout its business activities. We believe its ESG performance is
similar to those of their peers although the company is not rated by Refinitiv or included in ESG Leaders Index. MYOR has greatly improved
the Environmental and Social aspects of its ESG throughout the years, in our view. It managed to reduce its GHG emissions and promoted
education and training in its Social initiatives according to its latest annual report.

Snack companies like MYOR produce substantial packaging wastes from their product sales
generation. However, MYOR has not incorporated noticeable efforts to reduce its packaging waste
Packaging waste.
by shifting to eco-friendly materials. That aside, it has put proper green initiatives in other areas
e.g. energy efficiency and waste management according to company’s annual report.
MYOR has adopted at least six of the UN Sustainable Development Goals (SDGs) in its overall
business practices. As a food manufacturer, MYOR has close to zero waste that can pollute the
environment and zero waste volume thrown into landfills. In addition, MYOR has also implemented
two main programs: Mayora Clean Energy and Mayora Green (tree-planting initiatives) in support
MYOR’s Environment and Social performance is in line with peers in the of its long-term environment sustainability goals.
industry. Its Boards of Directors and Commissioners lack gender
diversity. It has also implemented many social programmes such as Mayora Care which includes house
renovations projects benefiting underserved communities and Mayora Education Programme which
has trained 40,792 employees in order to develop their soft and hard skills relating to their positions
as a way to demonstrate commitment to employee development. Currently, all 10 members of its
Board of Commissioners and Directors are men.
Trends Implications
We believe MYOR will continue its energy saving efforts as it poses advantages in reducing
FMCG companies’ continuous efforts to adopt environmentally-friendly operating cost to companies in the food manufacturing industry. Going forward, as packaging
packaging and other green initiatives to promote sustainability. waste become more problematic, we think the company may have to set aside some resources to
resolve the issues.
27
ESG in a nutshell: ASSA

• Employing technology in its operations allows Adi Sarana Bersama (ASSA) to expand its business cost effectively while creating new jobs for
Indonesians. The headcount for its express delivery unit (Anteraja) has tripled in less than two years. However, we see room for improvement
in its Environmental pillar, similar to other transport-based companies.
.

Adoption of more environmentally-friendly fuel in its fleet of delivery vans ASSA’s fleet of delivery vehicles still predominantly uses fossil-based fuel. It will have to gradually
and motorbikes and how it handles customer complaints as its express adopt more environmentally-friendly fuels. The company will also have to maintain its service level
delivery operations expand. agreement (SLA) while expanding its operations.
Anteraja is expected to contribute 50% of ASSA’s revenue in 2022F.
While Anteraja couriers are contract-based, the company provides As the company aggressively employs new couriers, the workers’ job satisfaction is the focus of
health insurance, labour social security program, leave allowances and Anteraja to sustain its growth.
bonuses. This is not common in other Indonesian companies.
Trends Implications
While tackling the issue of fuel usage can be challenging, ASSA strives We see the environmental pillar as the most challenging aspect for transport-based companies.
to lower its energy usage through reduced water consumption and solar Further improvement for ASSA may come from improved gender diversity in its management and
panels installed at its facilities. back office given that express delivery workers are predominantly male.
28
ESG in a nutshell: UNTR

• United Tractors (UNTR) scored B- in its latest ESG Combined Score by Refinitiv and is ranked within the top 30% of its peer group. The
company scores very well on the social front, good on governance, but lags behind peers on the environmental front. Sustainalytics, a
Morningstar company, puts UNTR under high risk in its ESG Risk Rating, but still ranks UNTR at the top 20% of its peer group.
• With the acquisition of Martabe in mid-2018, UNTR has showed its commitment to diversify away from direct exposure to thermal coal. As at
end-2020, UNTR’s gold mining subsidiary has been able to contribute close to 40% to the group’s pretax profit. In addition, UNTR’s minority
25% stake in Tanjung Jati B coal-fired power plant Units 5 & 6 Expansion Project will commence in early-2022F and utilise ultra-supercritical
technology which requires less coal per MWh, leading to lower GHG emissions (including carbon dioxide and mercury), higher efficiency and
lower fuel costs per MW.

Progress of UNTR’s diversification away from the thermal coal business. We believe that if UT were to direct its heavy cash balance towards green investments, the market
will appreciate the gesture and assign higher P/E multiples to the company.
Possible M&As or green investments. The company is in a net cash

position (Rp26tr cash balance with Rp12.7tr worth of debts – implying
-0.2x net gearing ratio).
On the Environmental front, UT has seen its resource-use score and If UT were able to improve its environmental score going forward, and maintain its current social
rating trending lower over time, while its GHG emission score remains and governance scores, we believe the market will generally appreciate the gesture and assign
low. higher P/E multiples to the company.
Its weak Environmental score has been offset by a stellar track record in
its Social score and positive improvement in its Governance score over
time.
Trends Implications
UNTR improved its Refinitiv’s 2019 Environmental pillar rating to B-, up We have not applied any premium/discount on ESG in our fundamental valuations. However, as
from C in 2018, while maintaining its Social and Governance pillars the company continues to build on its ESG efforts, we believe these could lead to lower perceived
rating at A and B, respectively. ESG risk among investors and the investment community.
29
ESG in a nutshell: ADRO

• Adaro Energy (ADRO) scored B- on its latest ESG Combined Score by Refinitiv, and is ranked among the top 35% of its peer group. The
company scored above peers on all three pillars. Recently, the gap vs. peers on the environmental and social pillars is shrinking, but this is
arguably offset by the strong boost in its governance pillar. In addition, Sustainalytics, a Morningstar company, puts ADRO under high risk
(borderline severe) in its ESG Risk Rating. Nonetheless, ADRO is still ranked no.89 out of 282 among its global peers.
• We believe ADRO’s thermal coal assets will remain relevant over the near to medium term due to its coal’s low ash and sulphur content; but
as global coal-fired power plants are being phased out completely in the long run, ADRO will cease to benefit from this advantage. Knowing
the risks, the company has been increasing its exposure in coking coal projects and the downstream market over the past few years. As at
end-1Q21, ADRO has US$1.2bn cash and approximately US$1.5bn worth of debts, or 0.1x net gearing. Given its strong balance sheet, we
believe ADRO will soon tap green investments to diversify away from its coal-mining assets.

Progress of ADRO’s diversification away from the thermal coal business. We believe that if ADRO were to engage in new green investments given its strong balance sheet,
the market could assign higher P/E multiples to the company.
On the Environmental and Social pillar fronts, the gap vs. peers is If ADRO were able to improve its Environmental and Social scores going forward while maintaining
shrinking recently … its current strong Governance front relative to peers, we believe the market will assign higher P/E
multiples to the company.
… but these have been offset by the strong boost in the Governance
pillar front.
Trends Implications
ADRO has been able to retain its B- score for its Refinitiv’s 2020 ESG We have not applied any premium/discount on ESG in our fundamental valuations. However, as
Combined Score, with a retained Environmental pillar score at B, the company continues to build on its ESG efforts, we believe these could lead to lower perceived
worsening Social pillar score at C+ (vs B- in 2019) and improving ESG risk among investors and the investment community.
Governance pillar at B (vs C- in 2019).
30
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Other Significant Financial Interests:

(i) As of June 30, 2021 CGS-CIMB has a proprietary position in the securities (which may include but not be limited to shares, warrants, call warrants and/or any other derivatives) in the following company or
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(ii) Analyst Disclosure: As of July 28, 2021, the analyst(s) who prepared this report, and the associate(s), has / have an interest in the securities (which may include but not be limited to shares, warrants, call warrants
and/or any other derivatives) in the following company or companies covered or recommended in this report:
(a) -
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C
company mentioned in the research report in the past 12 months.

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33
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34
may be, the recipient must seek proper advice before adopting any investment decision. This document does not constitute a public offering of securities.
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CGS-CIMB Thailand may act or acts as Market Maker, and issuer and offeror of Derivative Warrants and Structured Note which may have the following securities as its underlying securities. Investors should carefully read and study the
details of the derivative warrants in the prospectus before making investment decisions.
AAV, ACE, ADVANC, AEONTS, AMATA, AOT, AP, BAM, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEC, BEM, BGRIM, BH, BJC, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, CRC, DELTA, DOHOME, DTAC, EA,
EGCO, ESSO, GLOBAL, GPSC, GULF, GUNKUL, HANA, HMPRO, ICHI, INTUCH, IRPC, IVL, JAS, JMART, JMT, KBANK, KCE, KKP, KTB, KTC, LH, MAJOR, MEGA, MINT, MTC, NRF, OR, ORI, OSP, PLANB, PRM, PSL, PTG, PTL,
PTT, PTTEP, PTTGC, QH, RATCH, RBF, RS, SAWAD, SCB, SCC, SCGP, SINGER, SPALI, SPRC, STA, STEC, STGT, SUPER, SYNEX, TASCO, TCAP, THANI, TISCO, TKN, TOP, TQM, TRUE, TTB, TU, TVO, VGI, WHA
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is
based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the
perspective of a third party. It is not an evaluation of operation and is not based on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of
such survey result.
Score Range: 90 - 100 80 – 89 70 - 79 Below 70 No Survey Result
Description: Excellent Very Good Good N/A N/A
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35
Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a recommendation to effect any transactions in the
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United States Third-Party Disclaimer: If this report is distributed in the United States of America by Raymond James & Associates, Inc (“RJA”), this report is third-party research prepared for and distributed in the
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Institutional Investors or Major U.S. Institutional Investor whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative securities and who have professional
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https://raymondjames.com/InternationalEquityDisclosures
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Distribution of stock ratings and inv estment banking clients for quarter ended on 30 June 2021
623 companies under cov erage for quarter ended on 30 June 2021
Rating Distribution (%) Inv estment Banking clients (%)
Add 72.1% 1.1%
Hold 19.3% 0.0%
Reduce 8.7% 0.0%
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2020, Anti-Corruption 2020
ADVANC – Excellent, Certified, AMATA – Excellent, Certified, ANAN – Excellent, n/a, AOT – Excellent, n/a, AP – Excellent, Certified, ASP – Excellent, n/a, AU – Good, n/a, BAM – Very Good, Certified, BAY –
Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Certified, BCP - Excellent, Certified, BCPG – Excellent, Certified, BDMS – Excellent, n/a, BEAUTY – Good, n/a, BH - Good, n/a, BJC – Very Good, n/a,
BLA – Excellent, Certified, BTS - Excellent, Certified, CBG – Very Good, n/a, CCET – n/a, n/a, CENTEL – Excellent, Certified, CHAYO – Very Good, n/a, CHG – Very Good, n/a, CK – Excellent, n/a, COM7 – Very
Good, Certified, CPALL – Excellent, Certified, CPF – Excellent, Certified, CPN - Excellent, Certified, CPNREIT – n/a, n/a, CRC – Very Good, n/a, DELTA - Excellent, Certified, DDD – Very Good, n/a, DIF – n/a, n/a,
DOHOME – Very Good, n/a, DREIT – n/a, n/a, DTAC – Excellent, Certified, ECL – Excellent, Certified, EGCO - Excellent, Certified, EPG – Excellent, Certified, ERW – Very Good, Certified, GFPT - Excellent,
Certified, GGC – Excellent, Certified, GLOBAL – Very Good, n/a, HANA - Excellent, Certified, HMPRO - Excellent, Certified, HUMAN – Good, n/a, ICHI – Excellent, Certified, III – Excellent, n/a, INTUCH - Excellent,
Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JASIF – n/a, n/a, JKN – Excellent, Declared, JMT – Very Good, Declared, KBANK - Excellent, Certified, KCE - Excellent,
Certified, KEX – n/a, n/a, KKP – Excellent, Certified, KSL – Excellent, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Excellent, n/a, LPN – Excellent, Certified, M – Very Good, Certified, MAKRO
– Excellent, Certified, MC – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MTC – Excellent, Certified, NETBAY – Very Good, n/a, NRF – n/a, n/a, OR – n/a, n/a, ORI – Excellent, Certified,
OSP – Very Good, n/a, PLANB – Excellent, Certified, PRINC – Very Good, Certified, PR9 – Excellent, n/a, PSH – Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent,
Certified, QH – Excellent, Certified, RBF – Good, n/a, RS – Excellent, n/a, RSP – Good, n/a, S – Excellent, n/a, SAK – n/a, n/a, SAPPE – Very Good, Certified, SAWAD – Very Good, n/a, SCB - Excellent, Certified,
SCC – Excellent, Certified, SCGP – n/a, n/a, SHR – Very Good, n/a, SIRI – Excellent, Certified, SPA – Very Good, n/a, SPALI - Excellent, Declared, SPRC – Excellent, Certified, SSP - Good, Declared, STEC – n/a,
n/a, SVI – Excellent, Certified, SYNEX – Very Good, n/a, TCAP – Excellent, Certified, THANI – Excellent, Certified, TIDLOR – n/a, n/a TISCO - Excellent, Certified, TKN – Very Good, n/a, TMB - Excellent, Certified,
TOP - Excellent, Certified, TRUE – Excellent, Certified, TU – Excellent, Certified, TVO – Excellent, Certified, VGI – Excellent, Certified, WHA – Excellent, Certified, WHART – n/a, n/a, WICE – Excellent, Certified,
WORK – Good, n/a.
- CG Score 2020 from Thai Institute of Directors Association (IOD)
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- Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of January 30, 2021) are categorised into: companies that have declared their intention to join CAC, and
companies certified by CAC.
Recommendation Framework
Stock Ratings Definition:
Add The stock’s total return is expected to exceed 10% over the next 12 months.
Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon
of 12 months.
Sector Ratings Definition:
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition:
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
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Introducing ESG Picks: Strategy

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Introducing ESG Picks: Strategy

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Indonesia

July 28, 2021

Introducing ESG picks

What constitutes ESG investing?

The investor’s ESG objectives and approaches

The rise of sustainable investing is supported by demographic shift

Gen Z (born in 1997- Gen X (born in 1965-

Millennial (born in 1981-

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

ESG-themed funds have seen significant inflows

SOURCES: CGS-CIMB RESEARCH, BLOOMBERG

The de-carbonisation initiative

Indonesia may impose carbon tax by 2022F

Case study: BlackRock’s Carbon Transition Readiness ETF

Indonesian corporates need to step up their ESG disclosures

CGS-CIMB Indonesia’s ESG list selection methodology

Compare ESG profiles and

Equity strategists apply a macro

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Target Refinitiv ESG Recurring ROE

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS , REFINITIV

BBRI BBCA BMRI BBNI BBTN

SOURCES: CGS-CIMB RESEARCH, REFINITIV

Refintiv ESG score

HMSP GGRM CPIN ICBP INDF

SOURCES: CGS-CIMB RESEARCH, REFINITIV

Refintiv ESG score

EXCL ISAT TLKM TOWR TBIG

SOURCES: CGS-CIMB RESEARCH, REFINITIV

Refintiv ESG score

ADRO PTBA ITMG UNTR

SOURCES: CGS-CIMB RESEARCH, REFINITIV

ESG in a nutshell: BBRI

Keep your eye on Implications

ESG in a nutshell: TOWR

Keep your eye on Implications

ESG highlights Implications

ESG in a nutshell: EMTK

Keep your eye on Implications

ESG highlights Implications

ESG in a nutshell: SILO

Keep your eye on Implications

ESG highlights Implications

ESG in a nutshell: MPPA

Keep your eye on Implications

ESG highlights Implications

SOURCES: CGS-CIMB RESEARCH, REFINITIV

ESG in a nutshell: BBCA

Keep your eye on Implications

ESG in a nutshell: BMRI

Keep your eye on Implications

SOURCES: CGS-CIMB RESEARCH, REFINITIV

ESG in a nutshell: ARTO

Keep your eye on Implications

ESG in a nutshell: TBIG

Keep your eye on Implications

ESG in a nutshell: HEAL

Keep your eye on Implications

ESG in a nutshell: SMGR

Keep your eye on Implications

ESG in a nutshell: MYOR

Keep your eye on Implications