ASEAN banks the missing link in addressing region’s FLAWS: FORESTS, LANDSCAPES, CLIMATE, WATER and SOCIETIES
The report, “Sustainable Banking in ASEAN: Addressing ASEAN’s FLAWS’” by WWF and the NUS Business School’s Centre for Governance, Institutions and Organisations (CGIO) finds that national commitments to climate change and sustainable development are not well reflected in the practices of ASEAN banks, nor in the region’s banking regulations.
Professor Tommy Koh, Ambassador-At-Large at Singapore’s Ministry of Foreign Affairs and Champion of the United Nations Environmental Program, said, “Banks have the power and responsibility to influence business practices and transform the region’s approach to development. With ASEAN’s food, water and physical security at stake, I urge the finance sector to take the necessary measures and be part of the solution.”
Even as ASEAN governments gear up to mitigate the impact of worsening environmental issues on their populations, banks continue to narrowly define and manage environmental risks. This contributes to environmental degradation such as climate change, which will exacerbate business risks for these banks and their clients over the longer term.
Banks need to align their businesses to climate and sustainable development goals
Through the report, WWF calls for banks to expand their approach to Environmental, Social and Governance (ESG) integration. This requires moving beyond managing short term risks towards embedding sustainability into their strategy and aligning their portfolios fully with the Paris Agreement and SDGs.
While 21 of the 34 ASEAN banks analysed acknowledge that the activities they finance can have adverse environmental and social impacts, none of the banks disclose how they manage climate or sustainability risks at the portfolio level. Further, even though 26 banks refer to sustainability in their strategy or vision, only 12 banks acknowledge the importance of climate risk for society and businesses, of which only one has senior level oversight of climate risks. Shareholders increasingly expect banks to disclose how they manage climate risks in their portfolio as these impact the financial viability of the banks.
Jeanne Stampe, WWF’s Head of Asia Finance and Commodities, said, “Countries will not have any chance of meeting their commitments to the Paris Climate Accord and the UN Sustainable Development Goals without the finance sector playing its part. There remains four years from now to stay below a 1.5 degree temperature rise as adopted in the Paris Agreement. Banks must therefore act now and develop robust sustainable banking practices within the next 12 months.”
WWF stands ready to work with all of the banks in ASEAN to build capacity on ESG integration and improve understanding of key ESG issues such as climate, water and deforestation.
Countries need prescriptive sustainable banking guidelines
WWF also calls for ASEAN’s regulators to implement prescriptive and time-bound sustainable finance guidelines in order to ensure the wider banking sector is making consistent progress towards these goals.
Regulatory frameworks in the form of corporate governance and reporting guidelines are already present in all six countries to support ESG integration. However, not all countries have sustainable banking regulations in place. Regulators can build upon this foundation to incentivise banks to create an ESG integration framework based on robust standards and science based targets.
Steve Waygood, Chief Responsible Investment Officer at Aviva, said, “Before capital markets can be genuinely sustainable, investors need capital market policymakers to have greater regard for future generations when setting policy. I encourage ASEAN financial institutions to engage with regulators and banking associations to demonstrate support for their sustainable finance regulations and take urgently needed action. Policy makers and regulators can work with civil society to create a multi-stakeholder based solution.”
A 2016 study by the Asian Development Bank projects climate change could lead to annual economic losses equivalent to 6.7 per cent of ASEAN’s gross domestic product by 2100; well over the projected global average of 2.6 per cent. Increasing fossil fuel-based energy production, deforestation-intensive agricultural commodities production, and unsustainable hydropower dams will exacerbate these losses. ASEAN banking sector must use the power of its balance sheet to protect ASEAN’s future.
About the report
WWF’s ‘Sustainable Banking in ASEAN: Addressing ASEAN’s FLAWS’ report reviews the sustainable finance regulatory landscape in the ASEAN region to shed light on the ESG integration progress of banks and their alignment to sustainable development. It assesses the disclosure of banks from six ASEAN countries against a set of indicators that represent the fundamental pillars of sound corporate governance practices and robust ESG integration pillars.
Only publicly available disclosure in the English language in the form of 2016 annual reports, sustainability or CSR reports released before 30 June and information posted on corporate websites were taken into consideration for this assessment.