ASEAN banks have a long way to go in decarbonising finance: Moody’s

There is little space for investors to invest more sustainably.

Banks in the Association of Southeast Asian Nations (ASEAN) are making progress, but still face data and transparency hurdles in order to meet their carbon neutrality targets, according to a report by Moody’s Investors Service.

Insufficient data and disclosure continue to pose challenges in order for banks to incorporate climate risks in loan underwriting.

"ASEAN banks will have to navigate a challenging path amidst pressure from investors, regulators and social forces to decarbonise their loan books and meet country-level net-zero emission targets that go beyond 2050,” said Alka Anbarasu, a Moody’s senior vice president.

“Disclosures related to climate risks by companies differ, which make it difficult for banks to assess climate risks for their corporate clients.”

So far, only a few large banks in Singapore, Malaysia, and the Philippines have explicit policies to refrain from financing new coal-fired power plants.

Across the ASEAN region, between 15% to 30% or as much as three in 10 of bank loans remain connected to carbon-intensive industries that have high carbon-transition risks such as coal-fired power generation; coal mining; oil and gas, according to Moody’s.

Even the largest banks are notedly slow to make progress in disclosing climate risks, a problem shared by banks in the US and Europe, as well. Moody's review of 28 large banks in the US, Europe, and Asia in 2021 found that just 21% reported carbon emissions funded through their lending and investments. Very few are also disclosing how climate change may affect their profit, apart from the revenue they expect to generate from developing green products, the review found.

According to Moody’s the transition to a low-carbon economy will create vast financing opportunities for banks as it will require material investment in infrastructure and technology.

“In ASEAN in particular, sustainable economic development that requires the protection of biodiversity will entail significant investment from the public and private sectors,” the report read.

Currently, however, there is little space for investors to direct their money towards given the limited supply of green and sustainability-linked bonds due to the lack of standardised taxonomies. Green and sustainability-linked bonds issued by ASEAN countries and companies amounted to just more than $30b in the first half of 2021. Contrast that with Chinese firms, which issued over $190b in the first half of 2021, according to data from Climate Bond Initiative.