SINGAPORE, November 25, 2020 – WWF’s 2020 Sustainable Banking Assessment (SUSBA), which now includes 5 Japanese and 5 South Korean banks together with 38 ASEAN banks, finds that the banks assessed have made progress in integrating environmental and social considerations into their financing activities, but still have large gaps that leave their portfolios vulnerable to risks arising from climate change and nature loss. The assessment is based on a framework covering 6 aspects of overall ESG integration (Purpose, Policies, Processes, People, Products, Portfolio) and a new Sectors & Issues deep-dive analysis on sector policies.
SUSBA 2020 marks the fourth assessment by WWF and it has found a significant level of progress with over 75% of ASEAN banks making some improvement, and almost 30% improving on at least 10% of the assessment criteria from 2019. While there was a doubling of ASEAN banks fulfilling at least half of the 70 criteria, from 4 to 8, this remains a small proportion. 45% of banks fulfilled less than a quarter of the criteria, compared to 51% last year. While Korean banks scored similar to the ASEAN average, Japanese banks performed above this average.
WWF’s Senior Vice President of Asia Sustainable Finance, Dr Keith Lee, said, “Besides banks in ASEAN, this year’s assessment also includes major Japanese and South Korean banks. They play a significant role in financing businesses not just in their home countries but in Southeast Asia as well. The interdependence of Asia’s economies necessitates a harmonized approach to sustainable finance in which all banks contribute to sustainable development, and we hope to facilitate this by including these banks in SUSBA this year.”
The Japanese banks tended to score well on climate-related criteria. All banks explicitly disclosed in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations of climate-related governance, strategy, risk management, and metrics and targets. They also scored well on the Products pillar, with every bank achieving at least 75% of the criteria. Most not only offer green finance products and have targets to increase such financing, but also support clients more proactively with consulting services or awareness-raising activities.
The Korean banks scored well on disclosing how they have incorporated sustainability into their visions and long-term strategies, at a similar level to ASEAN banks. However, most had insufficient disclosure on the policies and processes used to manage ESG risk in their financing activities. Notably, KB Kookmin Bank (as part of KB Financial Group) is the first South Korean bank to implement a ban on all new coal-fired power plant construction projects.
The assessment found the following key results across ASEAN, Japan and South Korea.
· All 5 Japanese banks and 3 Korean banks have a strategy to manage climate-related risks and are listed as TCFD supporters. 24% of ASEAN banks have a climate strategy – quadruple the number from 2019, which indicates progress despite ASEAN banks remaining behind the curve.
· 34% of ASEAN banks recognize deforestation and biodiversity risks, a modest increase of 3 more than last year. While all 5 Japanese banks recognize deforestation risks, none have made similar commitments to eradicating deforestation in their portfolios.
· Only 21% of ASEAN banks and 20% of Korean banks recognize water risks beyond pollution. 1 Japanese bank and a few ASEAN banks recognize water pollution as a risk, but otherwise overlook the threats of water scarcity or flooding. No bank requires clients to conduct water risk assessments or practice water stewardship. However, water risks can be material to businesses, with up to US$425 billion of value at risk globally.
· The Sectors & Issues analysis found that Korean and Japanese banks are taking steps to reduce coal-related financing. Shinhan Bank and the 5 Japanese banks have policies prohibiting financing of coal-fired power plant projects, though these policies have exceptions for certain types of technology or carbon capture. MUFG, Mizuho and SMBC have also announced timelines by which to end coal-related financing. However, 91% of ASEAN banks assessed continue to finance new coal-fired power plants. DBS, OCBC and UOB are the only ASEAN banks to have prohibited the financing of new coal-fired power plants, while CIMB has announced its intentions to issue a coal policy by end-2020. Continued financing of coal leaves banks exposed to climate-related transition risks, such as carbon taxes and technological obsolescence.
· Encouragingly, 53% of ASEAN banks are now engaging with regulators on sustainable finance topics – a major increase over last year’s 31%.
In a promising sign, 35% of banks have set quantified targets to increase financing of more sustainable projects or businesses, including 4 Japanese and 2 Korean banks. Achieving these targets should help banks to generate positive impacts from their financing activities. However, banks can adopt a more strategic approach by setting science-based targets to decarbonize their portfolios, which will become ever more important as banks continue to face increasing pressure from investors to manage ESG risks. Of the 48 Asian banks assessed, Shinhan Bank (as part of Shinhan Financial Group) is the first to formally commit to setting science-based targets under the Science-Based Targets Initiative (SBTi).
“Many banks made good progress this year. Maintaining this progress into 2021 will be challenging but crucial as the world grapples with the Covid-19 pandemic. Banks have an important role to play; just as they help businesses recover from the pandemic, they are pivotal to navigating the climate and nature emergencies. This crisis has shown that society is more exposed to nature risk than ever, but with the right corrective actions, we can emerge stronger and more resilient,” said Dr Lee.
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Note to Editors: Refer to the report on key findings provided for more details.
About the report
WWF’s 2020 Sustainable Banking Assessment (SUSBA) is an update of WWF’s 2019 ‘Sustainable Banking in ASEAN’ report. The report benchmarks 38 ASEAN banks in six countries, 5 Japanese banks, and 5 South Korean banks against a set of indicators that represent the robust ESG integration pillars (Purpose, Policies, Processes, People, Products and Portfolio). In addition, a Sectors & Issues analysis serves 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 2019 annual reports, sustainability or CSR reports and information posted on corporate websites were taken into consideration for this assessment.
WWF is one of the world’s largest and most experienced conservation organizations, with over 5 million supporters and a global network active in more than 100 countries. WWF’s mission is to stop the degradation of the planet’s natural environment and to build a future in which people live in harmony with nature. WWF has worked with the finance sector for more than a decade via innovative collaborations that seek to integrate ESG risks and opportunities into mainstream finance so as to redirect financial flows to support the global sustainable development agenda. Our approach to sustainable finance leverages WWF’s conservation expertise in combination with our skills and experience in the finance sector to create innovative and collaborative ways of delivering better environmental and social risk management and new business opportunities to financial institutions.
Visit www.panda.org/news for latest WWF global news and media resources and follow us on Twitter @WWF_media and visit https://www.wwf.sg/sustainable_finance/ for more information on WWF’s sustainable finance work in the region.
We would like to acknowledge the following donors for funding the report:
Gordon and Betty Moore Foundation; International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag. The views expressed in this publication are the sole responsibility of the authors and do not necessarily reflect the opinion of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety.
For more information please contact:
Ted Kin Chen, WWF Sustainable Finance, Email: firstname.lastname@example.org