Banks in the region have made progress in integrating environmental and social (ESG) considerations into their financing activities, but still have large gaps that leave their portfolios vulnerable to risks arising from climate change and nature loss, WWF said.
Some three-quarters of banks in the region have made progress in ESG integration and almost 30 percent of banks improved on at least 10 percent of the assessment criteria since 2019, according to the 2020 Sustainable Banking Assessment, published by environmental protection organization WWF.
At the same time, continued financing of coal leaves banks exposed to climate-related transition risks, such as carbon taxes and technological obsolescence, the report highlighted. DBS, OCBC and UOB are the only ASEAN banks to have prohibited the financing of new coal-fired power plants, while Malaysia's CIMB has announced its intentions to issue a coal policy by end-2020.
The report noted that some 53 percent of ASEAN banks are now engaging with regulators on sustainable finance topics, compared to last year’s 31 percent, which it called «encouraging.»
Important Role
The assessment includes five Japanese and five South Korean banks, together with 38 ASEAN banks including Singapore's «Big 3» local banks. Banks were evaluated based on a framework covering six aspects of overall ESG integration (Purpose, Policies, Processes, People, Products, Portfolio) and a new Sectors & Issues analysis on sector policies.
While banks have made progress, WWF said that maintaining it will be «challenging but crucial» as the world grapples with the Covid-19 pandemic
«Banks have an important role to play; just as they help businesses recover from the pandemic, they are pivotal to navigating the climate and nature emergencies. This crisis has shown that society is more exposed to nature risk than ever, but with the right corrective actions, we can emerge stronger and more resilient,» Keith Lee, WWF Senior Vice President of Asia Sustainable Finance, said.
Quantified Targets
Some 35 percent of banks have set quantified targets to increase financing of more sustainable projects or businesses, including four Japanese and two Korean banks.
«Achieving these targets should help banks to generate positive impacts from their financing activities,» the report said, adding that banks can adopt a more strategic approach by setting science-based targets to decarbonize their portfolios, which will become ever more important as banks continue to face increasing pressure from investors to manage ESG risks.
Of the 48 Asian banks assessed, only Shinhan Bank has committed to setting science-based targets under the Science-Based Targets Initiative (SBTi).
