WE ARE SOLDOUT

Days
Hrs
Mins
Secs

Blog

Building ESG and Climate Resilience in the Financial Industry

22 October 2021

By

Cherine Fok

Share

Co-author: Christopher Soh, Sustainability Consultant at KPMG

3 min read

How can financial institutions remain resilient against climate change and address rising Environmental, Social and Governance (ESG) expectations of their stakeholders? The latest IPCC report in 2021 highlights the urgency to do more, decarbonise and limit global temperature rise. COVID-19 has also put social issues firmly in the spotlight.

ESG as a topic is by no means new but the interests and developments in ESG and sustainable financing in the region are certainly unprecedented. To name a few, we are observing the following trends in recent years:

  • Greater demand for ESG-related products and transparency from investors: By investing in such products and understanding their impacts, it helps them better manage and size ESG risks, whether financial or non-financial
  • The role of the financial industry is changing: For example, the Asian green bond and sustainable bonds market is surging, signalling that green recovery is synonymous to post-pandemic recovery
  • Active stewardship: In a nutshell, asset owners and investment managers are increasingly engaging with, and influencing investee companies on ESG issues
  • Climate risk regulatory developments: The regulators have set their expectations for financial institutions in the way they manage climate risks – In Singapore for example, the Environmental Risk Management Guidelines introduced by the Monetary Authority of Singapore (MAS) in 2020, aims to enhance the financial industry’s resilience and management of environmental risk with a focus on climate change

While ESG is gaining traction, it is worthwhile remembering that ESG integration is a journey and not just a destination. Considering the creation of ‘green jobs’, channelling of capital into sustainable developments, divestment from unsustainable business activities, and environmental and human rights protection, the positive effects of ESG developments on Asia is evident.

However, the robustness of green financing or responsible investment framework will take time to develop in this part of the world while a green taxonomy is still being developed. For example, the EU Green Taxonomy will help to facilitate robust, transparent and consistent definition of a list of ‘green activities’ and scale up sustainable investment in the European market with a credible benchmark. In comparison, investors in Asian countries such as Singapore may find it difficult to meaningfully ascertain if an investment or economic activity is ESG-centric. On this note, it will take time and commitment to create a clear benchmark, consistent with global standards such as the EU Green Taxonomy.

In a bid to strengthen resiliency, there are immediate actions that both financial institutions and corporates can take and it is safe to say that they require strong commitment:

  • Set a clear ESG vision for your organisation that articulates your approach to managing ESG risks and promoting ESG efforts.
  • For asset owners and investment managers, set a clear ESG policy framework to guide responsible investing activities.
  • Explore sizing financial impacts from climate-related risks linked to your portfolio and business through climate scenario analysis and stress-testing. Simultaneously, consider climate-related opportunities which may present new growth areas.
  • Pursue decarbonisation or carbon reduction efforts, either within your portfolio or other aspects of your business, which will be critical if we want to limit global temperature rise.
  • Consider setting science-based targets which will help your organisation to drive decarbonisation efforts and meet your climate ambition.
  • Collaborate with other industries to integrate ESG into mainstream finance. This could be done through thought leadership, capacity building, and active engagement with other industries or regulators.

Managing ESG and climate-related risk is undoubtedly business critical. The financial industry has an important role to play in this through sustainable financing and careful consideration of ESG criteria in decision-making processes. Given that ESG is mainstream, we should expect to see more sustainable financing developments in the near term.

References

A. Environmental Stewardship
To protect the environment, we organize programmes like mangrove nursery and Reforestation, Coastal and River Clean-Up, Community Based Environmental Solid Waste Management, Environmental IEC Campaign and Eco-Academy

B. Food Security and Sustainable Livelihood
To ensure a sustainable livelihood for the community, eco-tourism include Buhatan River Cruise Visitor Center Buhatan River Mangrove Boardwalk are run by the community. Others include Organic Vegetable and Root crops Farming, Vegetable and Root crops Chips and by-products Processing and establishing a Zero waste store.

C. Empowered Communities
To empower the community, we provide product and Agri-Enterprise Development Training, Immersion and Learnings Exchange Program, Earth Warrior Training and Community Based Social Entrepreneurship Training

Author

Cherine Fok

Director, Sustainability Services at KPMG

Did you enjoy reading this?

You might also be interested in

Blog

Big Data at AVPN: Mapping the Social Investment Universe in Asia Using Member Data

Blog

Tackling the World’s Biggest Challenges: How Leading Corporates Are Investing in Water-Tech Solutions

Blog

Lessons Learned from Social Incubation in Vietnam: From Seed Investors to Project Development

Sign up for the #1 newsletter on social investment in Asia.

This field is for validation purposes and should be left unchanged.

We see social investment as a continuum that encompasses everything from philanthropy and venture philanthropy to impact investing, CSR and sustainable investment. We call this the “Continuum of Capital”.

We see social investment as a continuum that encompasses everything from philanthropy and venture philanthropy to impact investing, CSR and sustainable investment. We call this the “Continuum of Capital”.

©2021 Asian Venture Philanthropy Network | AVPN is registered in Singapore as a charity (UEN 201016116M)

|

|