KUALA LUMPUR: Most banks in Asean now recognise the environmental, social and governance (ESG) risks and opportunities lie within their own lending portfolios and can impact their businesses, said the World Wide Fund for Nature (WWF).
WWF said only a handful of Asean banks were not embracing sustainability as a core business strategy.
“All but two banks refer to sustainability in their strategy, whilst only four banks do not recognise that their ESG footprint lies beyond their own internal operations.
“Twenty-five out of 35 banks identify responsible financing and/or climate change as material to their business activities, compared to 17 banks last year,” WWF said in its Sustainable Finance Report 2019.
Besides that, it said banks were engaging with stakeholders on responsible financing and climate change, with civil society increasingly being considered a key stakeholder group.
It said 18 banks compared to 14 last year disclosed the types of stakeholders they engage with on ESG issues, while 16 banks had started to engage with non-governmental organisations (NGOs) and civil society to understand the ESG impacts of their business activities, compared to nine last year.
However, it said Asean banks can do more to engage with regulators and policymakers on sustainable finance topics to participate in the development of sustainable banking regulations, as only 11 banks disclosed active involvement in this.
It said the ESG policy frameworks used by most banks need to be strengthened with robust standards for effective management of environmental and social risks.
“While the number of banks that have recognised the high risks associated with certain industries and have developed sector-specific requirements has doubled since last year (14 versus 7), only five banks require their clients to commit to international standards and certification schemes such as the IFC Performance Standards and RSPO,” it said.
It said banks were not fully integrating E&S risk management into their client and transaction approval and monitoring processes, which may result in unexpected and unmitigated risks.
Of the 22 banks that haa standardised frameworks for E&S risk management, not all banks elaborated on the steps taken to assess and monitor their clients.
“For instance, just eight of these banks require clients that are not compliant with E&S policies to implement time-bound action plans to mitigate these risks,” WWF said.
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