Asian banks still have no plans for zero emission goal

MANILA, Philippines — Asian banks, including the top three Philippine banks, have yet to lay down clear commitments and plans to help reach the net zero emissions goal and meet the 1.5 degrees Celsius global warming threshold under the Paris Agreement, based on latest findings of independent ESG risk and strategy consulting firm Asia Research and Engagement (ARE).

ARE assessed 32 leading banks in nine major Asian markets in a report titled “Banking Asia’s Future: How to Align with National Climate Plans,” and found none of the banks are taking sufficient action to meet the Paris Agreement objectives.

In the report, BDO Unibank Inc. and Bank of the Philippine Islands (BPI) were given a grade of D, meaning the banks acknowledge climate risks, but risk management processes and financing policies are weak.

Meanwhile, Metropolitan Bank & Trust got a grade of NS, or the bank has barely started its journey and may not fully acknowledge climate-related risks.

The research showed Philippine banks do not have board committees with climate oversight, do not reflect climate risks in the risk register, do not have commitments to align their financing with Paris goals, do not have clear restrictions on coal or carbon-intensive sectors. They also have not yet set sustainable finance targets.

Among the three banks, only BDO has set a restriction policy, specifically on forestry, and provides a breakdown on green finance provisions per product type.

So far, the Philippines has committed to reduce emissions by 75 percent below business as usual (BAU) by 2030 under its Nationally Determined Contributions (NDCs).

ARE said Asian banks are critical to supporting this transition toward low carbon economies, but they have not kept pace with changing expectations of tighter carbon regulation, disruption from cleaner technologies, and the impacts of the changing climate.

“Asia’s banks are mispricing exposure to carbon-intensive assets that are increasingly difficult to re-finance or transfer. Without urgent course correction, widespread misallocation of capital will continue, leaving the region vulnerable to correction. A proactive approach can avoid risks and position for multi-trillion-dollar opportunities in mitigating and adapting to climate change,” it said.

The consultancy firm said Asian banks should act with urgency as climate change is seen to impact Asia the most, with the region losing nearly 26.5 percent of its gross domestic product (GDP) in a severe scenario, based on stress tests undertaken by the Swiss Re Institute.

While Asian banks are still early in their journey, ARE said this presents exciting and pivotal time for the financial institutions, especially with the higher level of support for action following the Conference of Parties in Glasgow in November last year.

“This has led to a new sense of urgency and commitment across nations and the financial sector, particularly in the Asian region,” it said.

The research showed many green growth markets where Asian firms are leading the way.

“They should focus on playing their role in aligning to and supporting national policies and objectives in their home markets to achieve net-zero. This would truly represent a banking industry providing for Asia’s future,” ARE said.

The report also said both the banking and asset management industries are building capacity to address climate change.

“While there are still relatively few banks that have climate targets or scenario analysis, the number is increasing. But the pace of change needs to accelerate to meet the scale of the climate challenge,” ARE said.

With the report, ARE said it hopes banks and senior executives can put in place processes that enable better decision-making and allow them to address the pressures of climate change.

The consultancy firm reviewed 32 banks, or the three to five largest banks by market capitalization, across China/Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore and Thailand.

These institutions represent combined total assets of $33.5 trillion and combined total gross loans of $18.6 trillion.