TEMPO.CO, Jakarta - ASEAN financial institutions are lagging behind on environmental, social and governance (ESG) standards adopted by their counterparts in Brazil, China, South Africa, and Hong Kong, said a World Wildlife Fund report released at the Singapore institute of International Affairs's 2nd Singapore Dialogue on Sustainable World Resources.
"There is mounting evidence across Asia that environmental and social issues present growing risks to economic growth and social stability," explains report co-author Jeanne Stampe, WWF Asia Finance and Commodities Specialist. "Global banks and international institutional investors have begun to address these issues in their lending and investment decision-making processes."
Global regulators have also provided supporting regulatory frameworks. It is now time for financial institutions in Southeast Asia and their regulators to play their part. Only four out of the 18 banks analyzed disclosed the use of ESG as a tool in their credit processes and only one of these four had a forest sector policy. Of the 12 domestic investors, only two disclosed their corporate governance policy, and only one of these policies refer directly to ESG expectations for portfolio companies.
Low levels of ESG integration at domestic banks show the need for regulators to issue "green" creditors sustainable banking guidelines and/or require mandatory environmental and social impact assessments (ESIA) prior to loan disbursements, as being done in China and Brazil. Low levels of ESG practices by domestic investors also suggested a role for regulators to support stewardship codes promoting responsible investment practices.
The report also finds that while there is a clear case for sustainable production, only a minority of companies disclose their policies and practices. For example, amongst timber and pulp and paper companies, only 26 percent of companies disclose the legality of their base supple; although this is required by major EU and US markets. Similarly, only 19 percent of palm oil companies disclose time-bound targets to reduce GHG emissions, a glaring omission by an industry central to efforts to combat climate change due to deforestation and planting on peat, and that is vulnerable to weather changes and faces regulatory risk. The poor disclosure is partly linked to the fact that in these three countries, stock exchange disclosure requirements on ESG issues are too general. As such the report calls on regulators to require the disclosure of statistical information, as is done in Hong Kong and provide detailed sector guidelines.
The report, argues strongly for regional financiers to act in their own long-term interests and adopt ESG practices with urgency and calls for sustainable banking guidelines and more prescriptive sustainability disclosure requirements to be issued by regulatory authorities across ASEAN.