Over 60% of Asia-Pacific banks, insurers hindered by ESG screening costs: survey

EVEN as sustainable finance gains traction, many banks and insurers in Asia-Pacific face the challenge of balancing significant short-term costs of sustainable initiatives with their hard-to-measure long-term benefits.

These costs are hindering progress - about 61 per cent of firms surveyed cited the potential loss of business and revenue due to ESG (environmental, social and governance) screening as challenging, a recent survey by Accenture showed.

This comes even as firms recognise commercial benefits from pursuing ESG initiatives, particularly in risk control and an expansion of revenue opportunities by developing new products and services for potential or existing customers.

Other major challenges include a lack of clear understanding of current local and global regulations, lack of executive alignment on sustainability, lack of solid business cases and lack of data, resources, requisite infrastructure and executive commitment.

Firms in Hong Kong are least concerned about most of the challenges, followed by those in South-east Asia.

While nearly 8 in 10 financial services firms are already working to implement sustainable finance initiatives - and nearly half have designated it as the top strategic priority for their organisation - many have yet to "aggressively pursue" such programmes, said Accenture.

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There is room for improvement in implementing ESG principles, embedding relevant ESG issues in the decision-making process, and working with governments, regulators and other key stakeholders to promote widespread action.

Broadly, local policy in Asia-Pacific is more focused on providing incentives than compelling action, said Accenture.

As an example, both the Hong Kong Monetary Authority and the Monetary Authority of Singapore have launched green and sustainability-linked grant schemes.

Firms often face a confusing landscape of disclosure frameworks, incentive structures, data collection methods and external assessments developed and implemented in various jurisdictions by both the public and private sectors.

"Given that many firms are active in several markets across Asia-Pacific, they would clearly benefit from convergence to common frameworks, though some degree of flexibility and nuance will be required to accommodate local needs and differences," said Accenture.

In today's digital age, banks view technology infrastructure and services as the key catalyst to further their sustainability agenda, followed by performance metrics and operational processes.

Insurers surveyed prioritise organisation structure, technology infrastructure and services, and executive alignment.

"Building the requisite tech infrastructure will be integral to that endeavour and should help overcome remaining challenges such as demonstrating business value, measuring progress and standardising reporting," said Accenture.

Over the next 12 to 24 months, banks' focus is expected to shift to building ecosystems/partnerships, achieving executive alignment, and establishing proven business cases.

Insurers, meanwhile, will pivot to establishing performance metrics, achieving executive alignment and defining operational processes.

Overall, a third of all financial institutions surveyed are seeking to offer sustainable finance products, although the average is buoyed by respondents in the banking sector (42 per cent) with the insurance sector lagging considerably (25 per cent).

The gap is set to close over the next 12 to 24 months, however, as 31 per cent of insurance respondents said their firms will focus on providing sustainable finance products.

"Given the confluence of more defined global and regional policies and regulations, rising consumer awareness and increasing ESG-related risk factors, Asia-Pacific's banks, insurance companies and investment firms are facing more focused pressure to adopt sustainability initiatives," said Accenture.

The survey involved 267 individuals within banking and insurance firms across Australia, Hong Kong, India, Japan, Malaysia, Singapore and Thailand.