Banks are the fulcrum on which the lever of economic development pivots. They gather finance from around the globe, they assess the viability of undertakings, and they ensure sufficient funds are present for major development projects – everything from suspension bridges to power plants to mines and quarries. In Southeast Asia as elsewhere, assessing viability now includes ensuring that projects conform to laws and standards aimed at reducing carbon emissions, as well as strengthening communities and behaving in an ethical way.

This requires a revolution in the way banks underwrite capital requirements and measure success, requiring them to form a holistic viewpoint in which economics and the environment converge.  When it comes to this sustainability transition, ASEAN banks are at different stages of maturity.  In the second of this blog series, we give an indication of how broad this range of performance is.

Environmental champions are those that integrate Environment with Economics

At Accenture, we have constructed a methodology that allows us to assess the performance of banks in terms of their sustainable stewardship of capital. This analytical framework operates across four dimensions:

  • Behave transparently and ethically
  • Support thriving communities
  • Minimise environmental harm
  • Provide sustainable products and services

Over 100 metrics harmonised across multiple global standards (such as GRI, SASB and UN PRI) underpin our analysis, which is enriched by Accenture’s experience in advising and supporting banks in Southeast Asia. From this basis, we’ve identified the hallmarks of “sustainable banking champions” in ASEAN as of 2021.

Let’s begin with the “E” in ESG (Environmental, Social and Governance factors). For environmental champions, the watchword is integration. Only banks that have integrated decarbonisation across their entire business strategies and models are in a position to guarantee that their capital will be directed to projects that reduce, rather than increase, Southeast Asia’s carbon emissions. As we noted in our previous blog, the ASEAN region is one of the few where consumption of coal, the most polluting of the fossil fuels, has been increasing.

These champion banks will have defined a structured due diligence framework that integrates ESG considerations into all their lending and investment decisions.

They will have set themselves climate targets that chart their progress towards their own businesses being net-zero producers of carbon. For instance, they may already have transferred their repository of client and transaction information into a green data-centre powered exclusively by renewable energy sources, and they may have transferred their staff to office buildings that perform highly in terms of energy efficiency.

These banks will have launched sustainable products such as green bonds, lower-cost green loans and energy-efficiency finance, and will have ceased funding the development of highly polluting industries and projects. They will also be looking towards Scope 3 of the Paris climate accord, which makes businesses accountable for emissions throughout their value chains, and will be collecting ESG data from borrowers and investees to understand their financed emissions footprints and how to strategically link these to business strategy.

Social champions are inclusive, governance champions are transparent

What of the “S” and the “G”? The ASEAN region is still very largely a cash economy. More than 70% of the adult population of Southeast Asia – hundreds of millions of people – do not have effective access to banking services. This extends to businesses: only one-third of SMEs in the region have access to loans and a line of credit. The Asian Development Bank forecasts that improving financial inclusion could boost GDP by multiple percentage points in some ASEAN countries.

Regional banks that reflect the “social” element of ESG, according to the Accenture framework, are those that are actively innovating in order to extend services to the region’s unbanked and underbanked people and small businesses, for instance through their own mobile platforms. They will also, however, be seeking to upskill their own staff in sustainable-relevance practices, such as ESG risk-assessment and e-waste steward programs to ensure that electronic devices are recycled responsibly.

So how are ASEAN’s banks doing?

Do ASEAN’s banks match the performance of corporates more generally in Southeast Asia? Our framework suggests that the answer is yes. When it comes to Social and Governance issues, they are world-leading. However, as with the region’s businesses more broadly, when it comes to minimising environmental harm there is still some way to go, and this is dragging down their overall profile. As the anonymised graphic below demonstrates, there are currently no ASEAN banks that meet the benchmark for a Sustainability Champion.

Singapore’s banks are relatively ahead when compared to their peers from other parts of ASEAN. One of the major reasons for this is that MAS, Singapore’s financial regulator, is making a major push to establish the country as a hub for green finance. However, regional banks and local banks in ASEAN are being held back by a variety of factors. One is an issue that besets many organisations worldwide: the lack of a single global set of metrics, benchmarks, regulations and reporting standards, leaving some institutions unsure of which to apply and what to report. This lack of clarity also leads to confusion among ASEAN’s banks as to what constitutes a genuinely green financial product.

A recent Accenture survey of decision-makers in the Asia-Pacific found that establishing such metrics was close to being their top ESG priority, but that the very top concern was the possibility of short-term losses from screening-out business opportunities that are not ESG compliant, amid uncertainty over whether the long-term financial gains would compensate for this. Over 60% describe this as “challenging” or “very challenging”. The survey also indicated concerns about their organisation’s limited understanding of green financing practices and talent pool.

Perhaps unsurprisingly, this was accompanied by doubts over the extent to which executive teams are currently aligned with ESG, with a majority of respondents describing this as a challenge. It manifested itself in practical terms as a lack of budget for sustainable transition, and lack of a clear strategy for ESG in general.

In our next blog, we examine the practical steps that would allow Southeast Asia’s banks to overcome these concerns, catch up, and establish themselves as Sustainability Champions.

END

Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors.

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Alison Kennedy

Managing Director – Strategy & Consulting Lead, Southeast Asia


Akansha Agarwal

Senior Manager – Strategy & Consulting, Southeast Asia

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