WWF-Singapore’s Sustainable Banking Assessment 2022

WWF-Singapore’s Sustainable Banking Assessment 2022 finds that despite increasing net-zero commitments, Asian banks also need to focus on nature-related risks

JANUARY 12, 2023

• Net zero commitments among the assessed banks have increased to 39% in 2022 from 15% in 2021
• While nature-related risks are recognised as important by regional banks, most of them do not require their customers to do a comprehensive assessment and management of nature-related risks
• Only half of the banks assessed made significant progress in integrating environmental and social (E&S) considerations into their decision-making
• Science-based decarbonisation targets still present a main gap for energy sector portfolios with only 11% of banks setting targets in this area.

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SINGAPORE, 12 January 2023 – WWF-Singapore’s 2022 Sustainable Banking Assessment (SUSBA), which now includes 36 ASEAN banks and 10 major Japanese and Korean banks, finds that more than double the number of banks from 2021’s assessment have committed to achieving net-zero financed emissions by 2050. However, the report also finds that although leading banks continue to enhance their E&S risk management policies and processes, half of the banks assessed have made little or no progress since 2021. Equally, when it comes to nature risks, banks need to go beyond recognition and commitment and expand their capacity to manage these risks within their policies.

“The SUSBA 2022 assessment is a testament to WWF-Singapore’s continuous efforts to rally financial institutions to recognise their role to tackle climate change. It echoes WWF-Singapore’s tagline – ‘Together Possible’. We look forward to deepen our engagement with regional banks and see them make meaningful progress towards our net-zero ambitions,” said Mr R. Raghunathan, Chief Executive Officer at WWF-Singapore.

Kristina Anguelova, WWF-Singapore’s Head of Asia Sustainable Finance, said “while net zero commitments among the assessed banks have increased to 39% in 2022 from 15% in 2021, it is imperative for the remaining banks to also make these commitments. Equally momentous, for all banks, is to develop science-based targets that guide the decarbonisation of their portfolios aligned with 1.5-degree pathways, along with credible transition plans, that go beyond climate and start to incorporate nature ambitions.”

Banks need to develop capabilities to manage nature-related risks

Singaporean, Indonesian, and Malaysian banks, on average, meet at least 70% of the criteria for recognising nature-related risks. However, this recognition of risk is not reflected within client expectations and policies on nature-related issues. Only 40% of the criteria is met by Singaporean banks for setting client expectations on nature-related risk while other assessed countries meet only 20% of the criteria or lower.

“Developing capacity to identify, assess and manage nature-related risks will be crucial for banks given the targets set by the recent Kunming-Montreal Global Biodiversity Framework (GBF) and the Taskforce on Nature-related Financial Disclosures (TNFD) framework.” said Kristina Anguelova.

Sector-specific assessment amplifies banks’ critical role against climate change

Financial institutions play an important role in safeguarding ecosystems and set client expectations to move towards sustainably sourced commodities. Of the 46 assessed banks, 11 banks disclosed palm oil policies, an improvement from 2021 when only three banks reported the same. Likewise in the energy sector, 49% of banks developed and disclosed specific energy sector policies, an increase from 29% in 2021.

However, despite increased coverage of bank policies within the palm oil sector, greater traceability is emphasised with the need for increased requirements of certification and supply chain traceability solutions, and compliance from palm oil exporters to ensure commodities are deforestation-free. The gaps within the supply chains present opportunities for financial institutions to help clients with portfolio risk assessments and to minimise bank exposure to upcoming regulatory risks.

An analysis of the energy sector, the source of three-quarters of global greenhouse gas emissions, emphasised a greater need for more banks to set science-based targets to transition their energy portfolio, regardless of current incentives from regulators. In addition, an analysis of energy transition-related regulations also suggests that most regulators from the countries assessed are not yet requiring banks to set science-based targets and develop transition plans.

Regulators are pivotal in guiding the future

The 2022 assessment further highlights the pivotal position of regulators within the finance sector to implement and align E&S risk management requirements and to ensure financial stability for banks. The report shows that there is still wide variation in assessed banks’ E&S integration performance both across the region and within most countries. Regulators are uniquely positioned to raise the bar, and level the playing field, by both aligning and enhancing ESG risk management and disclosure requirements throughout the region. They can further help banks to meet these requirements by supporting capacity-building and by initiating implementation task forces. With nearly half of the planet’s biodiversity hotspots located in Asia Pacific, preserving this region will be critical in meeting global climate and nature ambitions.

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About the report

WWF’s 2022 Sustainable Banking Assessment (SUSBA) is an update of WWF’s 2021 Sustainable Banking in ASEAN’ report. The SUSBA framework was developed to provide a decision-useful assessment framework that incorporates E&S issues most relevant to the Asian region, and aligns with existing international frameworks, standards and initiatives, including Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, UNEP-FI Principles for Responsible Banking (PRB), Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and Sustainability Accounting Standards Board (SASB).

The report benchmarks 36 ASEAN banks and 10 major Japanese and Korean banks against a set of indicators that represent the robust ESG integration pillars (Purpose, Policies, Processes, People, Products and Portfolio). In addition, sector specific assessments are added to the SUSBA framework as a deeper dive into the Policies pillar, benchmarking bank commitments and expectations of clients. The results are presented in an online interactive platform (www.susba.org) which allows users to compare selected banks and indicators based on their preferences.

Only publicly available disclosure in the English language in the form of fiscal year 2022 annual reports, sustainability reports and information posted on corporate websites such as company policies, statements, and press releases.

About WWF-Singapore

World Wide Fund for Nature (WWF) is one of the world’s largest and most respected independent conservation organisations. WWF’s mission is to stop the degradation of the earth’s natural environment and to build a future in which humans live in harmony with nature.

As one of WWF’s international hubs, WWF-Singapore supports a global network spanning over 100 countries. WWF Singapore works closely with local stakeholders towards a greener and more sustainable Singapore and the region around us. We work to address key conservation areas, such as climate change, sustainable finance, deforestation, illegal wildlife trade, marine conservation, and sustainable production and consumption, through collaboration, education and outreach efforts involving the community, businesses, and governments. For more information, please visit wwf.sg.

For more information, please visit wwf.sg.

This report is funded by Die Internationale Klimaschutzinitiative (IKI) and the Gordon and Betty Moore Foundation. This project is part of the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and Consumer Protection supports this initiative on the basis of a decision adopted by the German Bundestag.

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