Asean banks not all ready to meet climate targets: Moody's

BANKS in South-east Asia are at varying levels of readiness to meet their carbon neutrality targets, with insufficient data and disclosures posing challenges for banks to incorporate climate risks in their loan underwriting, said Moody's Investors Service.

A limited supply of green and sustainability-linked bonds in the region is also making it difficult for institutional investors and banks to meet their net-zero targets.

In a report on Monday (Mar 21), Moody's noted that the priority of achieving carbon neutrality is not equal across Asean countries, as many carbon-intensive sectors remain important in supporting economic growth, resulting in banks in the region having large exposures to companies with high carbon-transition risks.

While the research team expects Asean banks will continue to support the funding needs of these corporations, it noted risks from changes in policies amid the global push to reduce carbon emissions.

Insufficient data is hindering banks from assessing the climate risks of their clients, particularly in South-east Asia, as many companies in the region are not listed and not subject to any public disclosure requirements, with banks themselves also making slow progress in disclosures, Moody's said.

Additionally, the availability of green and sustainability-linked bonds and loans in the region is limited, likely due to a wide variation of taxonomies and definitions of eligible investments, the research team said.

It noted that green and sustainability-linked bonds issued by Asean countries and companies amounted to just more than US$30.7 billion in the first half of 2021, compared with US$496 billion globally.

This is despite the benefits of a low-carbon economy for the region, where sustainable economic development that requires the protection of biodiversity will likely entail significant investment from the public and private sectors, Moody's said.

The research team expects that a common taxonomy for sustainable financing for the region can help facilitate the development of green bond markets in emerging markets in the region.

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