ASEAN banks face challenges in declassifying finances

The countries and corporations of the Association of Southeast Asian Nations (ASEAN) are preparing at various levels to meet their carbon neutrality goals. While they are making progress, insufficient information and disclosure have created challenges for banks to include climate risk in debt underwriting, according to a new report by Moody’s Investors Service.

Some of the key outcomes of a roundtable discussion co-hosted by Moody’s with the International Finance Institute on 10 February were under the theme “Advancing Net Zero Goals: ASEAN Opinions”.

  • ASEAN governments, companies and banks are in various stages of preparation for tackling climate risk
  • Insufficient information and disclosure to include climate risk in loan underwriting poses a challenge for banks

“ASEAN banks will have to navigate a challenging path in the face of investor, regulatory and social pressures to decriminalize their debt books and meet the country-wide net-zero emission targets that go beyond 2050.” Climate risk assessment is difficult for their corporate clients, “said Alka Anbarsu, Moody’s senior vice president.

Across the ASEAN region, 15% -30% of banking system loans are for carbon-intensive industries with high carbon-transition risk, such as coal-based power generation; Coal mining; Oil and gas

So far, only a few large banks in Singapore, Malaysia and the Philippines have a clear policy of refraining from financing new coal-fired power plants.

Banks are also making slow progress in exposing climate risks. A Moody’s review of 28 major banks in the United States, Europe and Asia in 2021 found that only 21% of carbon emissions were financed by their loans and investments, rarely revealing how climate change could affect their profits, in addition to the revenue they expect. Developing that green product.

The transition to a low-carbon economy will create huge financing opportunities for banks as it will require material investment in infrastructure and technology. In ASEAN in particular, sustainable economic development that requires protection of biodiversity will require significant investment from the public and private sectors.

However, the limited supply of green and durable-linked bonds is a challenge for institutional investors due to the lack of standardized taxonomy. The amount of green and sustainable bonds issued by ASEAN countries and firms in the first half of 2021 was only $ 30 billion, with over 190 190 billion issued by Chinese firms and over $ 490 billion globally in the first half of 2021, according to the Climate Bond Index.

Customers can access the report here: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1319189

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