Sponsorship, Standardisation and Skills: the ingredients for sustainable financing in Southeast Asia

Southeast Asia has enormous potential as a destination for sustainable investment, and as a place to raise sustainable capital. However, its banks are lagging in terms of their environmental practices, as we illustrated in our previous blog. How can they catch up and lead the way for other geographies? Below, we set out a series of no-regret actions for how the region’s banks can close the gap and position themselves to grasp the burgeoning opportunities presented by ESG (Environmental, Social and Governance) investment.

Executive buy-in is essential

As we noted in our previous blog, a recent Accenture-Forrester survey of decision-makers across the Asia-Pacific found that a lack of executive alignment and necessary skills were major obstacles to ESG integration in the business strategy of organisations, sapping institutions of the necessary budget and strategic vision to launch sustainable finance products.

A first and essential step, then, is for ASEAN’s banks to achieve a level of executive engagement that allows ESG to go from being an uncoordinated amalgam of activities across the firm to a coordinated strategy that treats sustainability as a major business -imperative, one that aligns with the objectives of clients, communities, employees, Southeast Asian governments and, increasingly, regulators.

The second key step is for this strong leadership to be complemented by the development of internal ESG champions who can promote sustainability throughout the organisation. The survey showed that a significant lack of ESG expertise and training is another factor holding back the growth of the sector in the Asia-Pacific. Banks can address this shortfall by standing-up dedicated Sustainability Squads and embedding sustainability as a key skill across departments such as risk and front office.

Once these Sustainability Squads are in place, it becomes possible to take the next steps needed to pivot the sustainability narrative and accelerate the journey of embedding sustainability as a key business imperative and growth opportunity – “Profit with Purpose”.

• Establishing the relationship between financial performance and sustainability. Although it is recognised that sustainable banks can generate sizeable profits, the risk of short-term loss of business and revenue due to ESG screening is cited as the topmost concern by decision-makers in our survey when it comes to implementing ESG strategies, products and services. Alleviating this concern requires a holistic framework and methodology to articulate sustainable value capture and link sustainability to shareholder value.  At Accenture, we use the Value 360 framework to measure our success, which systematically embeds sustainability as part of our overall scorecard.
• Unscrambling the world of ESG ratings and developing a consistent taxonomy. Another concern holding back ESG integration is the lack of an official global system of standards and benchmarks; multiple standards such as GRI, SASB and UN SDG offering different metrics. The Sustainability Squad can work towards creating standardised ESG metrics and materiality for sectors and geographies they operate in, to harmonise multiple sets of indicators. They can leverage technology solutions to expand data sources and formats and build ESG data transformation capability, providing a holistic view.
• Updating risk frameworks and models to incorporate ESG. Climate risk is undoubtedly also a financial risk. Banks need to systemically include ESG risks in their lending and investment due diligence and performance models, internal risk reports and external disclosures. The Task Force on Climate-Related Financial Disclosures (TCFD) has drawn up a suite of recommendations for consistent climate-related financial disclosures that are useful to investors, lenders, and insurance underwriters in understanding material risks. Banks should also adapt their existing risk governance structures to address and mitigate sustainability-related risks – particularly given that rising sea levels pose a huge climate threat to ASEAN’s long coastline, as we noted in our first blog.
• Developing transformational ESG data and analytics capability. In our survey, the lack of reliable and comparable data surfaced as one of the most prominent impediments to measuring and reporting sustainability efforts. Many major banks and corporations rely on external ESG data providers while waiting for official standards to be decided. However, leaders are creating a holistic data strategy and centralised ESG data capability to collect, transform and leverage data and are deploying transparent algorithms to deduce ESG scores that inform their business strategy, products and pricing. This also helps to identify and address “greenwashing” issues where a company’s environmental credentials are being exaggerated.

Following the above recommendations will give Southeast Asia’s banks insights into innovative sustainable products and pricing tailored to ASEAN’s particularities, ambitions and opportunities. Such offerings are likely to be of interest to ESG-minded markets not just regionally but globally.

In addition to looking at their client portfolio, banks that seek to be sustainability champions also have to look at their internal operational aspects such as green IT, green real-estate and electronic waste management to reduce their own emissions while they re-profile their books along green lines.

The road ahead is clear: sustainability will be increasingly woven into the organisational fabric of Southeast Asia’s banks and incorporated into their products, policies and processes. Building the requisite technology infrastructure will be integral to that endeavour and should help overcome challenges such as demonstrating business value, measuring progress and standardising reporting. But the results of our survey also demonstrate that raising awareness and encouraging a shift in mindset is crucial, considering the inertia created by concerns over short-term revenue loss, a lack of understanding of global regulations and a shortfall of executive alignment.

Implemented with strong leadership and a human-centered approach, Southeast Asian banks can lead the way in the “E” of ESG as they already do in terms of the social and governance factors. This will establish them as sustainability champions across-the-board. It will align them with the decarbonisation ambitions of ASEAN’s governments and expectations of its younger Millennial generation of investors. And in the process, it will maximise the banks’ own future growth potential.

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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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