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WWF releases first report on Sustainable Banking Regulations in ASEAN and third installment of the ASEAN Sustainable Banking Assessment report
The report, entitled Sustainable Banking Regulations in ASEAN, assesses regulations and guidelines issued by financial regulators or banking associations in the five above countries, based on a new framework reflecting WWF’s insights on what constitutes a robust foundation of regulatory practices. The framework is based on 25 indicators divided across six pillars: scope, strategy & governance, policies & processes, portfolio risks & impacts, disclosure & transparency and enabling environment.
WWF believes that the regulations and guidelines currently in place should help address the uneven progress made by banks in the Association of Southeast Asian Nations (ASEAN), as demonstrated by WWF’s latest Sustainable Banking Assessment (SUSBA), published in August 2019. SUSBA assesses the ESG practices of ASEAN and international banks, including the 29 banks from the five countries assessed in this new report. Regulators can build on the report’s findings and recommendations to enhance the resilience of the ASEAN banking industry, and support the achievement of the Paris Agreement objectives and UN Sustainable Development Goals.
The sustainable banking regulations and guidelines assessed in the report provide a good foundation for sustainable banking practices. In all five countries, climate change and environmental degradation (such as deforestation and biodiversity loss) are explicitly mentioned as part of the E&S issues that banks should seek to address. At present, only 62% of the 29 banks recognize climate-related risks and 48% recognize risks associated with environmental degradation.
Financial regulators have a crucial role to play to ensure a resilient financial system that supports both international and national sustainable development objectives. The journey will not be easy, but it is necessary – Mark Carney, governor of the Bank of England, recently cautioned that “the task is large, the window of opportunity is short, and the risks are existential”. Regulators, the financial industry, science-based organizations and academia must come together if we are to ensure the prosperity of the ASEAN region.
To shift financial flows away from harmful activities and finance the transition toward a low-carbon and sustainable economy, fully mobilizing private capital is essential. Regulators can support the use of consistent science-based ‘green’ and ‘brown’ taxonomies of economic activities, and of robust standards for green financial products.
In Singapore and Malaysia, additional incentives such as green and sustainable bond grant schemes are in place to further support this transition. In Indonesia, Thailand and Vietnam, the financial regulators are considering the development of additional measures to promote green finance.
Back in August 2019, WWF published the third assessment of sustainable banking in the Association of Southeast Asian Nations (ASEAN), which highlights the progress of ASEAN's biggest banks on Environmental, Social & Governance (ESG) integration. The report considers the banking sector of 6 ASEAN countries, namely Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam and serves to investigate the sustainable finance landscape in the ASEAN region and highlight recent developments in the ESG integration progress of banks. Among the main objectives of the report are to highlight the potential for the finance sector to drive sustainable development in ASEAN with positive environmental, social and economic outcomes, and help stakeholders (shareholders, regulators and others) identify gaps and track banks’ disclosed progress and performance on corporate governance and ESG integration by comparing this year’s results against last year’s. In this third installment of the report, one of the key findings is that despite progress, ASEAN banks are not doing enough to mitigate the region’s pressing environmental and social issues which are creating unmitigated risks in loan portfolios, nor fully using their balance sheets to drive sustainable and resilient outcomes. Nonetheless, Malaysian banks continue to make slight progress. Further information can be found in the attached reports.