Despite making progress, ASEAN banks and regulators need to do more to shore up safeguards in light of climate and environmental crisis, WWF said.
Financial regulators and banking associations across Southeast Asia have «significantly» increased their expectations for banks to integrate environmental and social (E&S) considerations into their business strategy and operations, but banks must do more to protect the financial sector against such risks, World Wide Fund For Nature (WWF) Singapore said in a new report published on Tuesday.
According to the «Sustainable Banking Regulations in ASEAN» report, which looks at regulations and guidelines by regulators and banking associations in Indonesia, Malaysia, Singapore, Thailand and Vietnam, only 62 percent of the 29 banks assessed recognize climate-related risks and 48 percent recognize risks associated with environmental degradation.
Additionally, in Malaysia, Singapore, Thailand and Vietnam, financial regulators or banking associations expect banks to develop E&S policies on environmentally or socially sensitive sectors. However, only 43 percent of the banks assessed mention having such policies in place, and only 15 percent disclosed these policies, the report said, noting that in the region, only Singaporean banks DBS, OCBC and UOB have adopted «no deforestation» policies and prohibit the financing of new coal-fired power plants.
Opportunities Abound
The report highlighted «substantial socio-economic opportunities and positive environmental outcomes» in the transition to a more resilient and sustainable economy, though it would require «significant» investment.
«ASEAN banks should be more proactive and not wait for regulations to address the mounting risks in their portfolios and capture the business opportunities brought about by the transition to a more resilient and sustainable economy,» said Jeanne Stampe, WWF head of Asia Sustainable Finance and founder of the Asia Sustainable Finance Initiative.
WWF noted the crucial role banking associations have in facilitating change at the industry level, as they can help member banks by building their capacity and share best practices.
Regulators Lead the Way
WWF said that regulators need to provide more prescriptive guidance as most ASEAN banks do not have a strategic understanding of the E&S risks associated with their business activities and could be exposed given the lack of robust E&S policies. It also said that regulators may need to make it mandatory for banks to report in line with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD), which cover the management of climate risks and opportunities.
At the same time, regulators can play a role in mobilizing capital by developing measures to finance the transition toward a low-carbon and sustainable economy, such as Singapore's green bond grant scheme.
