Central banks and policymakers feel a sense of urgency

Institutions are expected to strengthen their sustainability practices and disclosures by integrating ESG risks into their investment processes. To boost confidence and appetite in sustainable products and assets, work is also underway to develop low-carbon benchmarks. Underpinning these new regulations is the EU taxonomy, a classification system that defines activities considered environmentally sustainable. The taxonomy is a major step towards harmonisation across sustainable finance products and should facilitate investments into sustainable activities. Institutions should measure their positive impacts, limit negative ones, and ensure compliance.

Industry-led initiatives paving the way for financial institutions to adopt ESG integration

ESG risks and opportunities can impact banks’ businesses. 25 out of 35 banks identify responsible financing and/or climate change as material to their business activities, compared to 17 banks last year. ASEAN banks are engaging with civil society stakeholders increasingly concerned with ESG issues and whose insights could prove valuable.

What do these global developments mean for ASEAN banks?

Central Banks and Policymakers need to recognise how short termism in the markets and political dynamics influenced by future elections can interfere with long term plans to create sustainable economies. The balance of human development and addressing climate change is crucially important. ASEAN banks are recognising the importance of ESG issues, and whilst some banks have yet to embrace sustainability as a core element of their business, most banks refer to sustainability in their strategies.

Increasing the momentum in ASEAN sustainable finance regulations and supporting government initiatives

Achieving financial stability depends on creating a regulatory framework around sustainable finance and supporting government initiatives. An integrated ESG approach to lending and managing assets can create scalable opportunities for the ASEAN region. The report recognises the Sustainable Banking Network initiative that brings together industry, academic, and science-based resources to support financial institutions in implementing science-based ESG best practices.

Regional trends based on 2019 assessment

This year’s assessment analyses ESG integration performance across 35 ASEAN banks. The banks were assessed based on publicly available disclosures such as annual reports, sustainability, or CSR reports, company policies and statements, investor presentations and press releases.

Key findings

The report highlights that most banks now understand that ESG risks and opportunities lie within their own lending portfolios and can impact their businesses. 32 out of 35 banks have embedded sustainability into their vision and mission statements, however, 4 banks do not recognise their ESG footprint beyond their own internal operations. The report also reveals that ASEAN banks can do more to engage with regulators and policymakers on sustainable finance topics.

Recommendations

The report provides a series of recommendations to ASEAN banks and banking regulators, including initiatives to strengthen existing banking regulations and guidelines by requiring banks to adopt science-based standards and targets. ASEAN banks should also assess their lending portfolio, align them with the objectives of the Paris Agreement and disclose information in line with TCFD recommendations. ASEAN banks are recommended to increase engagement with stakeholders and regulators to drive stronger collective action on ESG issues. Banking regulators should also initiate stress-testing of the resilience of the financial sector to climate- and environment-related risks. All staff, including board directors and senior management should be provided with training on ESG issues.