Asean banks need to work harder on sustainable business practices: WWF

Singapore

SINGAPORE's three banks are ahead of their Asean peers in environmental, social and governance (ESG) business practices, but it's far from adequate - and they need to step up their act urgently, said the World Wildlife Fund (WWF).

Regulatory and investment risk linked to the environment is tangible in Asean, said a WWF report.

The transboundary haze and climate change have resulted in billions in economic losses for countries, and affected the lives of the region's 650 million people.

"Governments are taking steps on sustainable development but efforts have been undermined by a more fundamental issue: banks still finance unsustainable industries and overlook environmental risks in their portfolios," it said.

Still, among Asean banks, DBS, OCBC and United Overseas Bank have done more than their peers in the region to integrate ESG factors into their business practices.

The 2017 WWF Sustainable Finance Report calls for urgent action by Asean banks in the next 12 months - coupled with robust sustainable banking guidelines - to prevent a looming environmental and social crisis that could cripple Asean's growth.

It also called on Asean regulators or banking associations to implement prescriptive and time-bound sustainable finance guidelines in order to ensure the wider banking sector is making consistent progress towards these goals.

"Regulatory frameworks in the form of corporate governance and reporting guidelines are already present in all six countries to support ESG integration.

Food, security at stake

"However, not all countries have sustainable banking regulations in place. Regulators can build upon this foundation to incentivise banks to create an ESG integration framework based on robust standards and science-based targets."

Banks have the power and responsibility to influence business practices and transform the region's approach to development, said Professor Tommy Koh, Ambassador-At-Large at Singapore's Ministry of Foreign Affairs and Champion of the United Nations Environment Programme.

"With Asean's food, water and physical security at stake, I urge the finance sector to take the necessary measures and be part of the solution," he said.

On the three Singapore banks, the report said none disclosed participation in commitment-based sustainable finance initiatives, except for one bank stating its role in working together with the banking association to develop sustainable finance guidelines.

On policies, it said none of the banks disclosed requirements for all clients across sensitive ESG sectors to take actions. Industries that harm the environment in terms of carbon emissions include transport, energy and agriculture.

"Even though banks do assess clients, they did not disclose sufficient information about engagement and monitoring procedures," said the report.

What's being done

Only one bank disclosed sustainability-related key performance indicators, although it would be in accordance with the SGX Sustainability Guidelines requirement to link ESG targets with management performance incentives.

The SGX this year made it mandatory for listed companies to publish their ESG practices.

While these are nascent signs of sustainability-oriented market solutions, there is still no indication that banks are integrating environmental and social factors into mainstream capital allocation decisions," it said.

OCBC said it does integrate ESG factors in its lending guidelines, and will publish its efforts in next year's annual report.

Vincent Choo, OCBC chief risk officer, told The Business Times that the bank will publish its inaugural Sustainability Report in the 2017 annual report in line with the regulatory requirements.

"While information about our ESG initiatives and efforts has not been disclosed publicly in a dedicated write-up in our previous annual reports, promoting and embracing sustainable business practices is a priority of our board and management," said Mr Choo.

OCBC has integrated ESG considerations into its credit and risk evaluation process, he said.

"We will not engage in or knowingly finance any activity where there is clear evidence of immitigable adverse impact to the environment, people or communities.

"We expect our customers to meet their local ESG laws and regulations and that they will meet higher ESG industry standards over time," he said.

Sustainability is a journey and DBS has taken steps towards it, said a bank spokesman.

Earlier this year, DBS established a sustainability council, which comprises senior leaders across business and support units, and reports to the chief executive, she said.

The council is responsible for developing DBS's overarching sustainability framework, setting KPIs and targets in consultation with the relevant business and support units, and driving sustainability initiatives across the bank.

"DBS formalised its responsible financing framework in January 2017. The framework provides a consistent approach to assess material ESG risks and it applies to all lending and capital markets businesses," she said.

Of the United Nations' 17 Sustainable Development Goals to end poverty, protect the planet and ensure that all people enjoy peace and prosperity, DBS has chosen to focus on four of the 17, she said.

They are affordable and clean energy, decent work and economic growth, responsible consumption and production and climate actions.

UOB said it has integrated ESG considerations, including The Association of Banks in Singapore's (ABS) haze guidelines, into its credit evaluation and approval processes for corporate clients.

"We also carry out enhanced due diligence for companies in the eight high-risk sectors identified by the ABS, such as agriculture, metals and mining, infrastructure and forestry," said a UOB spokesman.

In addition, UOB works with non-governmental organisations, such as the WWF, to conduct capacity-building workshops for our employees to improve our practices and knowledge of important ESG issues, she said.