ASEAN banks need to do more on sustainable financing: WWF
(13 October 2017 – Asia) A new report urges regulators in ASEAN to introduce firmer sustainable finance regulations for banks, or risk their countries’ defaulting on climate pledges.
This finding are part of a report by World Wide Fund for Nature (WWF) and the National University of Singapore, titled Sustainable Banking in ASEAN: Addressing ASEAN’s FLAWS.
Responsible finance is increasing as banks in Singapore are now expected to integrate environmental, social and governance (ESG) criteria into their risk assessment and lending processes.
According to the report, although the region’s private sector has made some progress in recognising the impact that companies have on the environment and society in recent years, banking is still lagging.
The WWF report found ASEAN banks continue to fund planned coal-fired power stations in Vietnam and Indonesia.
Of the 34 banks in the study, which analysed the public data on the leading banks in Indonesia, Thailand, Malaysia, Vietnam, the Philippines and Singapore, 13 consider ESG risks to apply only to their own businesses.
As such, these banks see corporate governance and sustainability reporting as merely an exercise in good housekeeping rather than responsible lending, which has a far greater impact on people and the planet.
Most of the banks (21 of the 34) recognise that the businesses they lend money to might harm the environment and society, but none of them disclose how they manage sustainability risks at the portfolio level.
An even greater number (26) talk about sustainability in their corporate vision statements, and yet only 12 declare that climate change is a risk for society and business, the study found.
The study highlighted that the speed at which these banks are integrating ESG risks into their lending practices has been impacted by various sustainable finance regulations and guidelines that do not impose penalties or offer incentives to drive engagement.
This report finds banks based in Singapore leading, while Vietnamese banks have the most work to do.
Singapore banks are much better in two key areas of ESG integration - people and process. Its banks have more staff who are responsible for ESG, and who are assessed on their abilities in the field. Banks in the city-state also have the strongest processes in place for assessing ESG risks in client and transaction approvals.
As for corporate governance, Singapore banks also have the edge in disclosure and transparency and auditing on ESG risks.
WWF’s head of Asia finance and commodities, Jeanne Stampe said that while Singapore banks are in the lead, this is based on the information they disclose.
“Some banks maybe doing but not saying,” she said.
WWF recommends that financial regulators introduce stricter sustainable finance guidelines that will push Southeast Asia’s banks to adopt ESG principles in their lending.
“Global investors are starting to clean up their portfolios, and they will eventually ask the same of Asean banks,” Stampe said.
“The ability of Asean banks to tap into global capital markets is at stake. Asean needs its banks to grow, and it has to be able to attract international capital to do so.”
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