Asian banks are increasingly recognising nature-related risks as important, but are making little headway in converting that recognition into clearly stated expectations from their clients, WWF Singapore’s annual Sustainable Banking Assessment (SUSBA) has found.
The green group’s 2022 assessment of banks on issues such as climate and nature in the region included 36 banks in the Association of Southeast Asian Nations (ASEAN) countries and an additional ten across Japan and South Korea.
While steady progress is seen on climate – 39% of the banks had set net zero commitments in 2022 compared to 15% the year before – there is a longer path to walk on nature issues.
WWF found that while the participating banks in Indonesia, Singapore, and Malaysia met on average at least 70% of the criteria for recognising nature-related risks, Singaporean banks met only 40% of the criteria for setting client expectations for nature-related policies.
For Indonesia and Malaysia the number was just 20%.
“[I]t is imperative for the remaining banks to also make these [net zero] commitments. Equally momentous, for all banks, is to develop science-based targets that guide the decarbonisation of their portfolios aligned with 1.5-degree pathways, along with credible transition plans that go beyond climate and start to incorporate nature ambitions,” said Kristina Anguelova, head of Asia sustainable finance at WWF Singapore.
The report referred to a study by Temasek and the World Economic Forum finding that 63% of the region’s GDP – $19 trillion – is at risk from nature loss.
Among WWF’s recommendations for Asian banks was to develop effective policies to manage nature-related risks, which should have sufficient breadth to cover all financing, an exclusion list for high-risk activities, and guidance to clients setting out expectations for how they should manage nature risk.
They also need to put in place a monitoring mechanism to make sure these policies are complied with, the report said.
While some banks are making progress on these issues, the report found that many had made little or no progress at all during the last year, suggesting they are losing momentum.
WWF has since 2020 looked specifically at palm oil and energy as high-risk sectors where the banks should develop credible frameworks, and while there is progress – last year 11 of the included banks reported their palm oil policies compared to just three in 2021 – even in Singapore, the best-scoring country, the banks meet fewer than half of the WWF criteria.
The 2022 report included a specific analysis of seafood for the first time, and found that while many of the banks know the environmental aspects of this sector is important, their policies are insufficient to prevent and manage their exposure to these risks.
“The report shows that there is still wide variation in assessed banks’ E&S integration performance both across the region and within most countries,” WWF Singapore said.
“Regulators are uniquely positioned to raise the bar, and level the playing field, by both aligning and enhancing ESG risk management and disclosure requirements throughout the region. They can further help banks to meet these requirements by supporting capacity-building and by initiating implementation task forces.”
By Stian Reklev – stian@carbon-pulse.com
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