Our conversations with the 15 ASEAN banks, and our review of their publicly disclosed information, confirmed that all of them – to varying levels of sophistication – recognise the potential impacts of environmental and social risks on the credit quality and risk profile of their loan portfolios. In general, however, there is significant room for improvement regarding the scope and implementation of existing ESR policies, governance and disclosure.
Given the high vulnerability of countries in the region to the impacts of climate change, we are particularly concerned that banks have not taken decisive action yet to identify or manage climate-related risks and opportunities across their portfolios. As such, they face unmitigated risks in their balance sheets and stand to miss out on significant opportunities to support clients to transition to more sustainable business models in industries such as food, energy, infrastructure and transportation.
Going forward, we plan to continue our engagement with ASEAN banks to encourage them to continue improving their overall ESR management practices. Importantly, we will leverage the work we do as part of our ‘Financial Institutions and Climate Risk’ 2020 engagement project to ask ASEAN banks for strong climate risk and opportunity management.