IMPLEMENTATION OF SUSTAINABLE FINANCE BY BANKS IN ASEAN, JAPAN, AND SOUTH KOREA IS STILL BEING ACCELERATED
JAKARTA, December 1, 2020- WWF launched the 4th edition of the Sustainable Banking Assessment (SUSBA) Report in Singapore on Tuesday, September 21, 2020. This report contains an assessment of the integration of environmental, social and governance (ESG) aspects of 38 banks in ASEAN. This year there is an increase in coverage, namely as many as 5 banks each from Japan and South Korea (South Korea). Based on the assessment, on average banks have made progress in considering environmental and social aspects into their financing activities. However, more work needs to be done to address portfolio-level risk exposure arising from climate change and losses from environmental degradation. This SUSBA assessment utilizes a framework that covers the six pillars of ESG integration (Purpose, Policy, Process, People, Product, and Portfolio), as well as the new feature of analyzing sectoral and related issues in greater depth on sectoral financing policies.
According to this year's SUSBA report, 75% of ASEAN banks experienced significant growth. Nearly 30% of banks improved by at least 10% from the SUSBA assessment in 2019. Banks that met half of the total 70 SUSBA criteria doubled from 4 to 8 banks.
However, despite the doubling of banks in ASEAN meeting at least half of the 70 criteria, 8 banks is still a small proportion. Another 45% of banks met less than a quarter of the criteria, compared to 51% last year. While South Korean banks scored similar to the ASEAN average, Japanese banks performed above this average.
Rizkiasari Yudawinata, focal point for WWF Indonesia Foundation's sustainable finance program, noted that, "Since 2019, the implementation of the Financial Services Authority Regulation (POJK) 51 on Sustainable Finance applicable to BUKU 3 and 4 category banks has led to a more equitable increase in ESG integration disclosures in the Indonesian banking sector, resulting in 2nd place within ASEAN."
Indonesian banks excel in disclosure of ESG integration into overall business strategy, sector-specific policies, and have established capacity building programs for sustainable finance."
The 2 banks in Indonesia that excelled in fulfilling the criteria this year were BRI and BCA. BRI entered the top 10 banks that met the highest criteria at the ASEAN level. BRI met 40 out of a total of 70 criteria, while BCA met 33 criteria. In addition, BRI is the first bank in Indonesia to disclose that it will no longer finance business activities that will negatively impact UNESCO World Heritage Sites.
This year, the scope of the SUSBA assessment was expanded, with the addition of Japanese and South Korean banks. Banks in these two countries play an important role in business activities in Southeast Asia.
There is a need for harmonized and equitable norms in the implementation of sustainable finance at the Asian level, given the economic interdependence among countries in the region. This alignment is important to make a significant contribution to addressing sustainable development challenges, and build the resilience of the financial industry to the risks of climate change and environmental degradation. SUSBA is expected to help banks in the region to improve the equity of implementing sustainable finance," Rizkia added.
South Korea excels in disclosing their long-term vision and strategy, to the same extent as ASEAN banks. However, disclosure is generally weak in the Policies and Processes pillar in terms of managing ESG risks in financing activities. KB Koomin Bank is the only South Korean bank that has a policy to no longer provide new financing for coal-based power plant construction projects.
Overall, here are the key findings of SUSBA 2020 for the assessed banks in ASEAN, Japan and South Korea:
- A total of 5 Japanese banks and 60% of South Korean banks assessed have strategies to manage climate change-related risks and are all registered supporters of the Task Force on Climate-related Financial Disclosures (TCFD). 24% of ASEAN banks have a climate strategy - a fourfold increase although still relatively low.
- <34% of ASEAN banks recognize risks related to deforestation and biodiversity, a slight increase of 3 banks compared to last year. Meanwhile, while 5 banks in Japan have recognized deforestation risks, none have committed to addressing these risks in their portfolios.
- Only about 21% of banks in ASEAN and 20% of banks in South Korea recognize the importance of water-related risks in addition to pollution factors. 1 Japanese bank and several banks in ASEAN including in Indonesia have recognized water pollution as a material factor for business, with a total value of USD 425 billion exposed to water-related risks globally.
- Further analysis on water-related risks in the portfolio.
- A further analysis on related sectors and issues found that banks in Japan and South Korea have policies not to finance non-renewable power generation projects. Shinhan Bank and 5 Japanese banks do not finance coal-fired power projects, although this policy has exceptions for certain technologies or carbon capture. MUFG, Mizuho and SMBC have announced timelines and exit plans for financing the sector. DBS, OCBC and UOB are the ASEAN banks that have stopped providing new financing to the same sector as banks in Japan, while CIMB has also announced that it will issue a coal-related policy by the end of 2020. Meanwhile, banks in ASEAN are still financing the non-renewable sector. The persistence of banks in financing sectors that contribute highly to GHG emissions increases the potential risks to banks related to the climate change transition such as carbon taxes and technology lagging.
- 53% of ASEAN banks are now communicating more closely with regulators on sustainable finance, a considerable increase of 31%.
A promising sign is that 35% of the assessed banks have targeted an increased portfolio of financing for sustainable projects or businesses, including 4 Japanese and 2 South Korean banks. These achievements can at least support banks to generate a positive impact on their financing activities. In addition, banks can also adopt a more strategic approach such as setting targets to scientifically reduce carbon emissions from their portfolios - an approach that is expected to become more relevant in light of climate challenges. Of the 48 banks assessed, Shinhan bank was the only one to formally commit to setting a science-based target under the Science-Based Target (SBT) initiative.
Many banks have made progress this year. Maintaining consistency in 2021 is challenging but important, given that the world is currently being shaken by the sudden onset of the Covid-19 pandemic.
"Based on the Global Risk Report 2020, climate action failure and natural disasters are risks with a high probability of occurrence. Moreover, Indonesia is a country that is vulnerable to climate change risks. Therefore, banks need to realize that this moment needs to be utilized as well as possible to prepare a business strategy that is highly resilient to these challenges. This pandemic needs to be taken as a valuable lesson to correct our approach to anticipate the climate crisis that has been predicted earlier," Rizkia added.
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Note to Editor: See available reports for more details.
About SUSBA Report
The WWF 2020 Sustainable Banking Assessment (SUSBA) report is an update of the "Sustainable Banking in ASEAN" report released in 2019. This report features the results of 38 banks from 6 ASEAN countries, 5 Japanese banks, and 5 South Korean banks assessed against a set of indicators representing the ESG pillars (Purpose, Policies, Processes, People, Products, and Portfolio). In addition, sectoral analysis & related issues are presented as a deeper dive into the Policy pillar, which benchmarks the bank's commitment, and customer expectations. The results are presented in an interactive online platform (www.susba.org) that allows users to compare banks and select indicators based on preference.
Only publicly available disclosures in English in the form of 2019 annual reports, sustainability or CSR reports, and information published on company websites were considered in this assessment.
About WWF-Indonesia
WWF-Indonesia is an Indonesian incorporated civil society organization engaged in nature conservation and sustainable development, with the support of more than 100,000 supporters. WWF-Indonesia's mission is to halt environmental degradation and build a future where people live in harmony with nature, through the conservation of the world's biodiversity, the sustainable use of renewable natural resources, and support for the reduction of pollution and overconsumption. For the latest news, visit www.wwf.id and follow us on Twitter @WWF_id | Instagram @wwf_id | Facebook WWF-Indonesia | Youtube WWF-Indonesia | Line Friends WWF Indonesia.
For more information, please contact:
- Rizkiasari Yudawinata, WWF-Indonesia Sustainable Finance Program Lead| Mobile +62 811 2344 343, email: rjoedawinata@wwf.id
- Karina Lestiarsi, Communication, Campaign & Public Relations Team | Mobile +62 852 181 616 83, email: klestiarsi@wwf.id
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