Association of Southeast Asian Nations

Work with regulators

“With better information as a foundation, we can build a virtuous circle of better understanding of tomorrow’s risks, better pricing for investors, better decisions by policymakers, and a smoother transition to a lower-carbon economy.”

Mark Carney
Governor of the Bank of England

Sustainable finance regulations and guidelines

Regulations and guidelines play a key role in shaping the sustainable finance landscape. They provide financial institutions with clear direction, encourage the development of rigorous policies and green financial solutions, and help to level the playing field.

WWF supports the harmonisation and implementation of regulations and guidelines that strengthen the resilience of the regional finance sector by:

  • Interpreting the implications of global regulations for local and regional contexts
  • Identifying gaps in sustainable banking regulations and guidelines to support regulators and industry associations in strengthening regulations and guidelines and harmonising these across ASEAN

 

The harmonisation of sustainable banking practices across ASEAN would bring clear benefits, as most regional banks and their clients have operations across the region. Financial regulators and banking associations have a key role to play in creating a level playing field, and in encouraging a ‘race to the top’ on sustainable finance, facilitating the financial sector’s contribution to the Paris Agreement and regional sustainable development objectives.

Regulatory landscape
in Asean

The map below shows the regulations or guidelines pertaining to sustainable banking. The once listed are issued either by financial regulators or banking associations in ASEAN, already in place or announced at the time of publication of this report.

  • Cambodia

  • Indonesia

    The Financial Services Authority (OJK) issued the Regulation. No. 51/POJK.03/2017 on the Application of Sustainable Finance. For large commercial banks, the regulation came into force on January 1st, 2019.

    July 2017
  • Malaysia

    Following public consultation, Bank Negara Malaysia (BNM) issued the Value-based Intermediation Financing and Investment Impact Assessment Framework for Islamic banking.

    November 2019
  • Myanmar

    The country has not yet issued any guidelines or regulations on sustainable finance.

  • Philippines

    Bangko Sentral ng Pilipinas (BSP) announced the upcoming issuance of a regulatory framework for sustainable finance.

    By 2020
  • Singapore

    The Monetary Authority of Singapore (MAS) announced its plan to release environmental risk management guidelines for consultation early 2020.

    November 2019
  • Thailand

    The Thai Bankers’ Association (TBA) issued Sustainable Banking Guidelines – Responsible Lending, with support from Bank of Thailand (BOT).

    August 2018
  • Vietnam

Assessment framework – scope and methodology

As part of its sustainable finance work with financial institutions and regulators in ASEAN, WWF has developed a framework to assess sustainable banking regulations and guidelines. The framework reflects WWF’s insights on what constitutes a robust foundation of regulatory practices to ensure that the ASEAN banking sector is resilient in light of the climate and environmental crisis, and is aligned to support the objectives of the Paris Agreement and UN Sustainable Development Goals.

The framework provides a basis for constructive dialogue, engagement and capacity-building with financial regulators and banking associations, with the goal to strengthen and harmonize regulatory and banking practices across ASEAN. The framework is built on six pillars and 25 indicators, described below.

You can find the full assessment in the publication “Sustainable Banking in ASEAN – raising the bar”

01
Scope
01
Scope

The scope of regulations and guidelines should cover all commercial banks authorized to operate in the country. The scope should include wholesale lending, capital markets and advisory services. Ideally, sector-specific guidance sensitive sectors is issued.

02
Strategy & Governance
02
Strategy & Governance

Banks should be expected to factor in sustainability when defining their business strategy and governance practices. Board oversight, dedicating staff with clear roles and responsibilities, and training programmes is critical for implementing this sustainability strategy.

03
Policies & Progress
03
Policies & Progress

Banks are expected to have policies and processes, to ensure the integration of E&S considerations in decision-making and risk management processes. These should cover E&S sensitive issues and sectors. Banks should be encouraged to engage clients on good sustainability practices.

04
Portfolio Risks & Impacts
04
Portfolio Risks & Impacts

At the portfolio level, banks are expected to assess and manage their E&S impacts as and exposure to E&S risks. This can be done using forward-looking scenario analysis. The assessment also looks at whether the financial regulator performs (or plans to perform) climate-related stress-testing.

05
Disclosure & Transparency
05
Disclosure & Transparency

Banks should be required to publicly disclose their sust. strategy and report on its implementation. Stakeholder engagement, incl. civil society, is important to update the sustainability strategy. Banks should also be expected to report publicly on climate-related issues in line with TCFD.

06
Enabling Environment
06
Enabling Environment

An enabling environment is critical, for instance having standards and incentives for sustainable financial products and building the capacity. The assessment also looks at whether the national central bank or financial supervisor is part of the Network for Greening the Financial System (NGFS).

We recommend financial regulators to:

ASEAN financial regulators and banking associations have significantly strengthened their expectations for banks to integrate E&S considerations. However, in light of the climate and environmental crisis, regulators and banks should take additional steps to enhance the resilience of the financial sector.

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01
Require banks to develop policies covering specific E&S issues or industry sectors based on internationally-recognized sustainability standards and certification schemes and engage proactively with clients to support them in transitioning to low-carbon and sustainable business models.
02
Require banks to include oversight of sustainability strategy implementation and management of climate-related risks in the board’s terms of reference and make training programmes mandatory for board members and senior management.
03
Initiate stress-testing of the financial sector’s resilience to climate-related and environmental risks, based on forward-looking scenario analysis.
04
Require banks to assess portfolio-level E&S risk and set targets to align portfolios with the objectives of the Paris Agreement and other planetary boundaries.
05
Strengthen disclosure requirements for banks on portfolio-level exposure to, and management of, climate-related and environmental risks, in line with TCFD recommendations. We also recommend that financial regulators require banks to disclose the E&S impacts associated with their business activities.
06
Support the use of science-based ‘green’ and ‘brown’ taxonomies of economic activities which are consistent or comparable across countries, as well as of science-based and robust standards for green financial products.
07
Join existing industry initiatives such as the Network for Greening the Financial System (NGFS) to benefit from peer-to-peer sharing on good practices, and actively participate in the development of tools and methodologies to integrate climate-related and environmental risks in banking supervision, macro-prudential regulations and monetary policies.
08
Embrace multi-stakeholder approaches to address sustainable finance and E&S integration issues, by working together with banking associations and other stakeholders such as multilateral institutions, science-based organizations and academia.

Sector specific policies

Sector policies help financial institutions to understand and mitigate the risks associated with financing supply chain companies. This requires engagement with clients and portfolio companies to enforce, but also to support and work with them to achieve sector specific criteria and standards.

There exist different tools and guidance for financial institutions that help to establish a robust sustainable financing policy and screen their portfolios to determine the companies and issue areas that pose the greatest risk to their institution.

For soft commodity supply chains a useful benchmarking tool is: SCRIPT.FINANCE

Palm oil sector

In the palm oil sector, financial institutions and other stakeholders can play this role through the promotion and support for the Roundtable on Sustainable Palm Oil (RSPO) standard, as well as other rigorous, science-based sustainability criteria. This requires engagement with clients and portfolio companies to enforce, but also to support and work with them to achieve these criteria. This should be complemented by organizing client outreach, education and capacity building, as well as by supporting responsible land use planning, landscape approaches, smallholder inclusivity and supply chain traceability and transparency.

Infrastructure

Developing and maintaining infrastructure systems that are sustainable is a central part of mitigating the environmental impacts of development. Significant progress has been made in recent years to develop tools and assessments that can help infrastructure investors measure and report on the sustainability of their projects. We are currently working on best practice sector guidlines for the finance sector.

Mining and metals

Steel, aluminium and other metals are vital resources to our civilisation. Without them, our current way of life would be inconceivable. At mining sites, primary natural habitat is destroyed and acid drainage from
sludge retention ponds and mine dumps poisons soils and groundwater. The
processing stage, is highly energy intensive and contribute to climate change. We are currently working on best practice sector guidlines for the finance sector.