SINGAPORE (Aug 21): For decades, the financial industry has been accused of not taking climate risks seriously. A new report by conservation organisation WWF suggests that Asean banks, in particular, are dragging their feet on the issue.
The WWF’s 2019 Sustainable Banking Assessment found that none of the 35 banks assessed in Southeast Asia fulfilled all the organisation’s environmental, social and governance (ESG) indicators.
Only four banks achieved about half of these 70 criteria. On the other hand, 51% of the banks met less than a quarter of these standards.
The study singled out Singapore banks DBS, OCBC and UOB as the top performers in the region for prohibiting the financing of new coal-fired power plants and committing to no deforestation initiatives.
The WWF’s assessment aims to assess whether banking industry is responding to climate threats sufficiently. It measures areas such as sustainable financing initiatives, the bank’s ability to monitor clients’ environmental risks and ESG integration in the banks’ products.
In recent years, banks have come under increasing pressure from investors and global money managers to clean up their act and take sustainability seriously. Investors worry that if and when regulations kick in, the banks may end up with stranded assets that will affect its financial performance.
The resolve of these investors has gotten banks to introduce new sustainable financing products such as sustainability-linked loans. These have grown exponentially in recent years, surpassing green bonds.
But the WWF’s assessment suggests that most of these products have focused on renewable energy. Meanwhile, there is a huge financing gap in other crucial sectors, including agriculture and infrastructure.
However, the pressure from investors and money managers may not have been as strong in Southeast Asia.
Most Asean banks in the WWF study did not have a strategy to manage climate-related risks. While 57% of the banks in Asean have senior management in charge of ESG issues, only 14% of the banks require their clients to commit to global sustainability standards.
Further, about 91% of Asean banks still finance new coal-fired power plants.
One banker told The Edge Singapore previously that it is hard to turn down these projects in developing market if the banks want to grow. Environmental concerns are simply not the priority in these markets.
The WWF’s assessment also found that only 9% of Asean banks have commitments to no-deforestation policies. And none of the banks require clients to conduct water risk assessments.
But these are issues that may incur future financial costs for the banks. For instance, Thailand’s floods in 2011 incurred an economic cost of US$42 billion ($58 billion).
WWF says Asean banks will have to step up and manage climate risks in their clients’ portfolio. “ASEAN’s economies are very much interdependent, which magnifies the effects of climate change and environmental destruction,” says Jeanne Stampe, WWF’s Head of Asia Sustainable Finance.
