Posted on 14 November 2019
WWF Singapore welcomes the announcements made by Mr Ong Ye Kung, Minister for Education, Singapore and Board Member, Monetary Authority of Singapore (MAS), during his speech at the Fintech Festival entitled Green Finance for a Sustainable World.
The scale of the climate emergency we are collectively facing has never been clearer. Southeast Asia, with its long densely populated coastlines and low-lying topography, is particularly vulnerable to the physical impacts of climate change, while the risks associated with the transition to a low-carbon economy are also potentially significant. As rightly pointed out by Mr Ong, this has profound implications for our financial system. This crisis requires urgent and ambitious actions to be taken.
“WWF Singapore welcomes the leadership displayed by the Singapore government and MAS to enhance the resilience of the financial system to climate-related risks, and to accelerate the financial sector’s contribution to transitioning to a low-carbon economy. Given the importance of Singapore as a financial hub, and the significant progress by Singaporean banks on ESG integration, the new MAS measures show what can and should be done in ASEAN”, says Jeanne Stampe, Head, Asia Sustainable Finance at WWF-Singapore.
Among the key measures announced on Monday are the publication of environmental risk management guidelines for the banking, asset management and insurance sectors in Q1 2020 (for consultation), aimed at strengthening practices around governance, risk management, and disclosure. This will enable a better pricing of risks, contributing to shifting financial flows towards more sustainable activities.
WWF’s assessment of 35 ASEAN banks (Sustainable Banking Assessment) show that, despite progress over the past 3 years, banks are still insufficiently prepared to face climate-related risks. With only 7 banks (20%) assigning board responsibility over the management of climate risk, governance needs to be strengthened. Across the region, only 2 banks have started to perform a portfolio-level review of their exposure to climate risks, and 2 banks have a group-wide strategy to address climate risks. In ASEAN, only the three Singapore banks have publicly announced support for the Task Force on Climate-related Financial Disclosures (TCFD), which recommends better management and disclosure of how climate risks and opportunities. Most other banks lack the strategic understanding of which sectors are most exposed, leaving them vulnerable to climate risks.
Driven by new regulations, global investors are also intensifying pressure on ASEAN banks and corporates for improved sustainability performance and disclosure. As a recent example, a group of Principles for Responsible Investment signatories, representing USD 7.9 trillion in assets under management, are collectively engaging with portfolio companies throughout the palm oil value chain (including banks), with analytical input from WWF. In that respect, the push from MAS for more decision-useful disclosure by the financial sector is welcome.
In this context, ASEAN regulators and banking associations have significantly strengthened their expectations - by the end of 2019, sustainable banking regulations or guidelines will have been issued in 7 out of 10 ASEAN countries. MAS, along with Bank Negara Malaysia, Bank of Thailand and Bank Indonesia are part of the Network for Greening the Financial System (NGFS), a global network of 48 central banks and supervisors.
The NGFS encourages the development of a taxonomy to improve transparency around economic activities that are more exposed to climate and environmental risks, which would help mobilize capital to enable the transition to a more resilient and sustainable economy that respects planetary boundaries. The additional financial incentives announced by MAS covering green bonds / loans, and the work towards harmonizing standards for green financial solutions will contribute towards that goal.
Indeed, while 51% of the 35 ASEAN banks we assessed report providing green financial products (e.g. green bonds/loans), the private sector is not yet fully mobilized to fill the funding gap. For instance, only 3 banks have set targets to increase the share of green financing in their portfolio. By injecting USD 2 billion into the market, MAS is leading by example and showing how asset owners play a critical role in shifting financial flows away from unsustainable business activities.
For these ambitious measures to be successfully implemented, the active participation of all stakeholders will be required, from regulators to the financial institutions themselves as well as representatives of multilateral institutions, academia, civil society and science-based organisations. The Asia Sustainable Finance Initiative, which brings together leading global knowledge leaders and academia, stands ready to support the ASEAN financial sector in its sustainable finance journey.
In early December, WWF Singapore will publish a report assessing the current state of sustainable banking regulations and guidelines across ASEAN, based on a proprietary framework. Using our assessment of the banks’ ESG integration performance in those countries, this report will identify areas where regulations need to be tightened, as well as where banks need to strengthen their practices to meet increasing expectations.