Financial strategies for preserving nature in Asia show potential, yet require stricter oversight for effective implementation
In Southeast Asia, Nam A Bank of Vietnam has pledged to become a model for sustainable development, adopting international standards such as IFRS, Basel III, and ESMS, and supporting the government's Net Zero strategy and financial inclusion efforts. This move reflects the region's growing adoption of global frameworks for sustainability-linked financial instruments (SLF).
A study conducted by academics at the Grantham Institute at the London School of Economics focused on the regional market for SLF, which ties borrowing costs to environmental targets such as offering lower interest rates to companies that restore critical habitats. The report found that particular nature-related performance indicators related to water usage and waste management were missing from the sustainability targets in the SLF deals.
The study also suggests that lead arrangers and underwriters should be accredited as independent sustainability coordinators to vet and approve SLF targets, improving credibility and preventing conflicts of interest. However, it does not recommend any specific frameworks for financial institutions to standardize nature-related metrics in SLF deals.
Meanwhile, a separate study conducted by the University of Cambridge's Institute for Sustainability Leadership, the Monetary Authority of Singapore, and three Singaporean banks focuses on the potential impact of climate-nature loss scenarios on bank lending to the palm oil industry in Indonesia and Malaysia. The report stresses that considering nature-related dependencies and risks will become increasingly important as society continues to erode nature and impact the nature-based services upon which businesses depend.
The reports underline the importance of understanding nature-related risks and dependencies in the credit risk analysis of companies in the palm oil industry. They also suggest that regulators in South-east Asia should improve the transparency, credibility, and scalability of their financial tools for protecting and restoring critical natural habitats to reduce the risk of greenwashing.
However, neither report mentions any specific incentives for governments in the region to mobilize private investment in projects that support nature. The Grantham report does not underline the need for regional frameworks like the sustainability-linked bond standards developed by the Association of Southeast Asian Nations to be harmonised with global guidelines like the Taskforce on Nature-related Financial Disclosures.
The studies found that 60% of nature-related performance indicators disclosed in corporate reports were missing from the sustainability targets in the SLF deals, presenting opportunities for improved ecological accountability. The reports also highlight that companies with relatively better financial strength were more resilient to short-term acute stress, but the impact was higher for some companies in a severe climate-nature loss scenario.
In conclusion, the reports emphasize the need for improved sustainability practices in Southeast Asia's financial sector, particularly in relation to SLF and the palm oil industry. They suggest accreditation systems for sustainability coordinators, the standardization of nature-related metrics, and the harmonization of regional frameworks with global guidelines. Despite this, there is a lack of emphasis on incentivizing governments to invest in nature-supporting projects, which may be an area for future research and policy development.
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