05.09.2019

Southeast Asia: First banks want to avoid deforestation by setting up guidelines

The palm oil sector is critical, since related activities lead to deforestation and thus to biodiversity loss, which in turn fuels the climate crisis. Five of the banks analysed now base their palm oil sector financing on RSPO certification; Photo: Mazidi Abd Ghani/WWF Malaysia

The palm oil sector is critical, since related activities lead to deforestation and thus to biodiversity loss, which in turn fuels the climate crisis. Five of the banks analysed now base their palm oil sector financing on RSPO certification; Photo: Mazidi Abd Ghani/WWF Malaysia

Despite taking essential steps towards greater sustainability, investments by banks in Southeast Asia continue to contribute to deforestation and the aggravation of climate change, as a new survey carried out by WWF shows. This annual bank survey is part of the IKI/WWF project “Taking deforestation out of banks’ portfolios in emerging markets”.

Banks contribute to deforestation by financing their customers, which, for example, include the palm oil, pulp and paper sectors. Despite this threat, Southeast Asian banks are still not assuming enough responsibility to ensure a resilient and sustainable economy in the region. Jonas Aechtner, Project Manager Sustainable Finance at WWF Germany, says: “The financial sector is one of the most important actors when it comes to controlling sustainable commodity production. Banks are beginning to recognise this important steering role, but our bank survey shows that most of them still lack specific and robust sustainability standards.”

12 of the banks perceive deforestation as a risk – three of the surveyed banks now have guidelines to avoid deforestation; Photo: N.C. Turner/WWF

To compile its survey, the WWF examined 35 banks from Malaysia, Indonesia, Vietnam, Singapore, Thailand and the Philippines, based on 70 indicators related to their sustainable actions. Compared to the previous year, 26 of the banks improved slightly. Overall, however, only four banks from Singapore and Thailand fulfilled at least 50% of the indicators, while 18 of them fulfilled less than 25%.

Almost all banks now recognise that ESG (environmental, social and governance) risks and opportunities are part of their credit portfolios – and they have meanwhile introduced sustainability to their corporate strategies. The number of banks with sustainability requirements for critical sectors, such as palm oil or infrastructure, has doubled from 7 to 14. However, more banks must be convinced to comply with these requirements – and they must increasingly base their actions on international standards and certifications. A total of 12 of the banks perceive deforestation as a risk, five of the banks base their palm oil sector financing on “Roundtable on Sustainable Palm Oil (RSPO)” certification and three of the banks (9%) even have a guideline to avoid deforestation. These banking policy improvements comprise a critical step in the right direction, because some of the world’s most significant deforestation hotspots are right on our doorstep, such as the Mekong region and the islands of Sumatra and Borneo.

However, the water sector is still lagging in terms of comparative progress. As a direct result of the climate crisis, the region is suffering from water-related disasters, such as the destruction of crops and production facilities by floods – but the banks still do not systematically record these water risks. Only six banks recognise water risks at all. On the other hand, 9% of the banks surveyed now have explicit guidelines that exclude the financing of new coal-fired power plants – and that is at least a successful step in the right direction.

The Southeast Asian region is a hotspot for both biodiversity and deforestation. The financial sector has an important role to play in steering this region towards greater sustainability in the production of resources; Photo: Saipul Siagian/WWF Indonesia

The bank survey not only fulfils a benchmark role, the process also strengthens the mutual sharing of information between banks and civil society – and the potential also exists to extend this to other areas. The recent survey saw 16 banks exchange views with NGOs and civil society on issues such as the ESG impact on their business activities – and this compared to 9 in the previous survey. An evaluation framework of national E&S policies for the banking sector will be incorporated into this IKI project in November – an important step to highlight the role of banking associations and supervisory banking bodies – which is to work towards more sustainable commodity production and to cooperate on ESG guidelines for the banking sector


Further Information