Asean banks make green strides, but gaps remain in fossil-fuel financing: report
Most have already surpassed the sustainable finance targets they set for 2025
[SINGAPORE] Financial institutions in South-east Asia have made progress on several aspects of sustainable financing – whether in the areas of governance, financing policies and deals, as well as emissions disclosures.
This is according to a recent report by sustainability-focused consulting company Asia Research and Engagement, which looked at 14 of the larger banks in Indonesia, Malaysia, Philippines and Thailand, representing combined total assets of US$1.6 trillion and total loans of US$1 trillion.
However, it also noted the slow implementation of coal phase-out policies and restrictions for other high-carbon sectors such as gas or upstream oil and gas.
Progress, however, is uneven across markets. Banks that meet the minimum regulatory requirements in their jurisdiction may consider adhering to stricter regional – or even global – requirements, while those that are already the best in their markets may look to global peers, said the report.
It also highlighted areas that banks should continue working on. These include strengthening sectoral decarbonisation policies and restricting financing for high-carbon industries; setting and implementing 2050 net-zero targets at a group level covering all aspects of financing; and developing more climate expertise and oversight at board level.
In addition, the report said that consultation and collaboration with clients, regulators, investors and peers is key. Such collaborations with regulators can help to standardise disclosures.
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“Regional banks are increasingly realising that accelerating climate action can deliver advantages in the form of increased green financing opportunities, reputational trust and better regulatory preparedness,” read the report.
Net-zero commitments
Out of the 14 banks in the report, 11 have set net-zero targets for financed emissions compared with just three in 2022, which was the previous time a similar assessment was made.
This is likely due to the global trend in financial institutions setting science-backed decarbonisation targets over the past few years, as well as from increasing investor expectations, said the report.
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However, out of these 11 banks, only five – Malaysia’s Maybank, CIMB and Hong Leong, Thailand’s Siam Commercial Bank, and Indonesia’s Bank Rakyat – have committed to reach net-zero financed emissions by 2050, the same as the Paris Agreement.
Most of the banks’ net-zero commitments are shaped by their own countries’ decarbonisation plans. For example, Malaysian banks’ commitments line up with the country’s national target of net-zero by 2050. Meanwhile, none of the three Philippines banks assessed have set long-term net-zero targets as the country itself has not made any national commitment.
Seven of the banks have also committed to cease financing for new coal power generation, compared with just four in 2022.
CIMB, Maybank, Siam Commercial and KBank (Thailand) have set such policies for both corporate lending and project financing, while policies by Bank of the Philippine Islands, BDO Unibank and Hong Leong only cover project finance.
Five banks have a stated timeline for phasing out their existing coal power balances, compared with two in 2022.
“However, this leaves many banks in the region still financing coal, which is at odds with the International Energy Agency’s findings that unabated coal should be phased out by 2040 to achieve net zero,” read the report.
Six of them have announced policies on the financing of upstream oil and gas. However, these policies cover the financing of unconventional oil and gas such as tar sands and Arctic oil and gas, which is not relevant for the region. Traditional upstream oil and gas have not been included yet.
Financing restrictions have also been set by five banks on other high-emitting industries, such as coal mining, palm oil and agriculture.
Risk management
Half of the banks have started conducting physical risk scenario analysis on their portfolios, but only three have used these to inform their credit monitoring or overall lending practices.
The other seven banks continue to have either weak or insufficient mention of a physical risk scenario analysis.
Meanwhile, nine banks have some level of strategies to address transition risks arising from clients in their loan portfolios.
The majority of these banks have identified high-risk sectors and have a proactive client engagement process to address energy transition issues. Most of these banks also have escalation processes or follow-ups when their clients do not meet ESG criteria.
Disclosures
The report found a significant improvement in the disclosures of financed emissions, with nine banks providing such data, compared with none in 2022.
However, it found that there is wide variation in how banks disclose them, making comparisons difficult.
It added that more standardised financed emissions figures and breakdowns would provide banks and their stakeholders with a lot of valuable insight.
“First, such data would allow for the calculation of more standardised financed emissions intensity that eliminates the size factor and enables banks to see how they compare to peers. Second, the breakdown of financed emissions would provide more transparency to stakeholders and regulators,” read the report.
Sustainable financing
More banks have disclosed sustainable finance targets, increasing from five in 2022 to eight currently.
Most targets are set for 2025 and most banks have already surpassed them ahead of schedule.
All banks have also disclosed their current levels of sustainable financing for the most recent reporting year, up from nine in 2022.
However, even though banks are following taxonomies, there is a lack of standardisation in what they include in their sustainable and green financing, making comparison difficult, stated the report.
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