Robust sustainable banking guidelines and urgent action by banks are needed to prevent a looming environmental and social crisis that could cripple the region’s economic growth, the World Wide Fund for Nature warned in a report on Thursday.
“Sustainable banking in ASEAN: addressing ASEAN’s forests, landscapes, climate, water and societies (FLAWS)” by the WWF and the National University of Singapore’s Business School’s Centre for Governance, Institutions and Organisations (CGIO) said 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.
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.
Through the report, the WWF calls on 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 Sustainable Development Goals.
While 21 of the 34 ASEAN banks in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Việt Nam 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 since these impact their financial viability.
Jeanne Stampe, the 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 are 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.”
The 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, she said.
Sustainable banking guidelines
The WWF also calls for ASEAN regulators to implement prescriptive and time-bound sustainable finance guidelines 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 in place 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, the WWF said.
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 or 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 would exacerbate these losses, the WWF said.
The ASEAN banking sector must use the power of its balance sheet to protect ASEAN’s future, it added.