Financial strategies in Asia, aimed at conserving nature, show potential but call for stricter oversight
In a joint study conducted by the University of Cambridge's Institute for Sustainability Leadership, the Monetary Authority of Singapore, and three Singaporean banks, the potential impact of climate-nature loss scenarios on bank lending to the palm oil industry in Indonesia and Malaysia was examined. The study, focusing on the regional market for sustainability-linked finance (SLF), also emphasised the importance of understanding nature-related risks and dependencies in credit risk analysis.
The report stresses that as society continues to erode nature, considering nature-based service dependencies and risks will become increasingly important. It recommends that regional frameworks for SLF should be harmonised with global guidelines like the Taskforce on Nature-related Financial Disclosures to improve credibility and prevent conflicts of interest.
The study found that while companies with relatively better financial strength were more resilient to short-term acute stress, the impact was higher for some companies in a severe scenario. It suggests aligning corporate sustainability performance indicators with SLF targets and considering introducing penalties for non-compliance.
Financial institutions are urged to standardise nature-related metrics in SLF deals by adopting global frameworks. In Southeast Asia, financial institutions such as the Singapore Exchange (SGX) and the ASEAN Capital Markets Forum (ACMF) have been accredited as independent sustainability coordinators for the review and approval of sustainability-linked financial products.
However, the study does not suggest any new measures for aligning corporate sustainability performance indicators with SLF targets or introducing penalties for non-compliance. It also does not specify any new recommendations for regulators, financial institutions, or governments.
The tropical rainforests and freshwater systems of South-east Asia are under acute pressure from land-use change and water stress. Any collapse in the ecosystem of South-east Asia could cause substantial economic costs, but the study does not provide any specific figures or data on these potential economic costs.
The report also does not mention any plans for accrediting lead arrangers and underwriters as independent sustainability coordinators to vet and approve SLF targets. It does, however, suggest that lead arrangers and underwriters should be accredited in this role to improve credibility and prevent conflicts of interest.
The study concludes by urging regulators in South-east Asia to improve the transparency, credibility, and scalability of innovative financial tools to reduce the risk of greenwashing. It emphasises that considering nature-based service dependencies and risks will become increasingly important as society continues to erode nature, and that financial institutions play a crucial role in this regard.
