How ready is your bank for ESG?

ESG in APAC is a relatively new topic. Challenges may exist in the implementation, mainly from the lack of relevant experience and expertise. We share our framework that will keep your bank compliant with the latest ESG regulations. 

Environment, social, and corporate governance (ESG) sustainability issues have been receiving increasing attention across different industries globally, and the financial sector in the Asia-Pacific (APAC) region is no exception.

ESG in banking

ESG concerns, such as biodiversity loss, animal testing, nuclear power, and climate change, have not only triggered high-net-worth investors to reconsider their portfolio allocation, but also receive regulators’ attention. Both the Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA) have increased their focus on ESG by issuing guidelines on how financial institutions (FIs) could establish and implement the ESG framework effectively and how ESG risk management practices could be enhanced.

Environmental, social, and corporate governance in banking

Read about the challenges in incorporating ESG in banking and our approach to implementing the
ESG Regulatory Expectation framework that will keep your bank compliant.

Background: Hong Kong

In June 2020, the HKMA published a white paper on “Green and Sustainable Banking”. The white paper outlined the HKMA’s approach to promoting green and sustainable banking and its guiding principles for building climate resilience in the face of the impending impacts of climate change on Hong Kong’s banking industry.

Some key concerns raised by the HKMA include:

  • While sustainability could lead to business opportunities, the depletion of resources and stricter regulations would impact banks and their clientele.
  • Climate action failure and extreme weather events are ranked as the top two global risks in terms of likelihood and impact. Both have diverse risk implications for banks, including physical risk, transition risk, liability risk, credit risk, and operational risk.
  • While green and sustainable banking would pose risks to the operations and business of banks, it brings business opportunities with the reallocation of capital when transitioning to sustainable investments.

The HKMA also shared guidance on governance, strategy, risk management, and disclosure in respect to ESG.

Background: Singapore

The MAS published in June 2020 its consultation paper on proposed “Guidelines on Environmental Risk Management (Banks)”. It features MAS’s supervisory approach to environmental risk and their expectations for licensed banks, merchant banks, and related institutions.

MAS’s request for comments to the consultation paper closed in August 2020, and final guidelines were issued in December 2020, with an 18-month transition period. MAS will also start engaging key banks on their implementation progress from Q2 of 2021.

The key requirements include:

  • Engaging in green financing to channel capital towards a sustainable economy
  • Incorporating environmental risk into business and risk management strategy
  • Disclosure of environmental risk management approach to stakeholders

While there have been no enforcement actions for a failure to comply with the ESG requirements in the past, market participants will need to be vigilant, as this will be an area of increasing regulatory focus in the future.

Challenges in incorporating ESG in banking

Unlike Europe, where ESG has been rapidly growing in the past decade, ESG is a relatively new topic in APAC, and challenges may exist in its implementation process, mainly from a lack of relevant experience and expertise.

Challenges include:

  • A lack of concrete standards for banks of various sizes
  • Challenges in measuring risk exposure and assessing impacts
  • Difficulty in implementing system controls
  • Difficulty for international banks to align the local ESG requirements with the global framework

For a deeper dive into the challenges that banks may face while implementing the newly required ESG framework, download our flyer.

ESG Regulatory Expectation framework

Implementation approach

A robust organisation-wide ESG framework is paramount to ensure that ESG practices comply with client and regulatory expectations. Synpulse, with our in-depth ESG experience, can support you in building and implementing an ESG framework that is tailored to your bank’s specific operational circumstance and nature of business.

Our implementation approach looks at the process in four phases:

Phase 1: Gap assessment
Phase 2: Development of the Environmental Risk framework
Phase 3: Vendor analysis and shortlisting
Phase 4: Implementation

To read more about our implementation approach, download our flyer.

Environmental, social, and corporate governance in banking

Read about the challenges in incorporating ESG in banking and our approach to implementing the
ESG Regulatory Expectation framework that will keep your bank compliant.

 Synpulse is at the forefront of transformation topics, engaging with leading financial institutions to deliver both compliant and commercially viable ESG framework in response to evolving regulations. Our expertise in regulatory compliance and ESG will support you in all aspects, as the new ESG regulation comes into focus, providing you with insights and implementation approaches.

Speak to us to find out more about the industry best practices and how these ESG topics may impact your organisation.

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