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ESG Integration by Financial Institutions

Jeanne Stampe, WWF International Kuala Lumpur, 8 October 2015

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Why does ESG matter for

financial institutions?

The business case: The changing context for business

•  Transformational shifts in society: population growth, urbanization, rising incomes, and expectations

•  Ground rules for business are changing: sustainability standards are changing the social, political, and regulatory ground rules for business

•  Increasing pressure on banks as responsible parties to ESG impacts

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Changing Ground Rules: New laws and regulations in the region

•  China: Emerging government policies for overseas lending and investment; Green Credit Policy for banks; assessment guidelines for China’s Export-Import Bank; guidelines for companies

•  Bangladesh: Green Banking Policy •  Vietnam: Green credit guidelines

•  Indonesia: Sustainable Finance Roadmap

Raising the bar on compliance, impacting access to new markets

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Changing standards for market access, trade & export – credit implications

• EU/US/AU timber laws, UK’s green procurement policy; US ban on minerals from conflict zones

• Bilateral and regional trade agreements: EU and Indonesia on timber exports; proposed Trans Pacific Partnership pact

• Mechanisms for potential preferential finance: BEI’s Sustainable Shipment Letter of Credit

• International frameworks and industry standards for ESG policies

Changing Ground Rules: ESG certification& standards

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Inadequate ESG risk management in PO results in ……

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Restricted access or lost route to market via key traders

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Poor ESG risk management by timber, pulp & paper companies …………

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…..results in lost market access to EU, US, Australia

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Public as Regulators And Financial Institutions as Responsible Parties

Public monitoring and action are robust and on the rise: •  A maturing and influential NGO sector in emerging markets •  Public anger and action as accelerators for government activity •  Movements to change the industry environment, e.g. divestment in

oil, gas and coal by banks and institutional investors Greater focus on banks as responsible parties in ESG impacts •  Persistent public pressure on financial institutions (DB and HSBC;

Adani coal finance) •  Banks as “recognized” party in international frameworks and

industry standards for ESG policies •  The signal importance of UNEP-FI, UN-PRI, the Equator Principles

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Integration of ESG : where do regional banks stand?

Regional banks are exposed to forest risk commodity companies

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Yet they are very slow to integrate ESG compared to international good practice (1)

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Yet they are very slow to integrate ESG compared to international good practice (2)

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Indonesian banks are further head than Singapore and Malaysian banks, so are their regulators (1)

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Indonesian banks are further head than Singapore and Malaysian banks, so are their regulators (2)

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Regional banks have dominant shareholders who can support the move to integrate ESG (1)

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Regional banks have dominant shareholders who can support the move to integrate ESG (2)

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Recommendations to address the current lack of ESG Integration

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Adoption of ESG practices: where do regional investors stand?

Regional investors are invested in forest risk commodity companies

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Significant gaps between regional investors and international good practice (1)

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Significant gaps between regional investors and international good practice (2)

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One or two regional investors have made good progress, most are lagging

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Key recommendations for investors and securities market regulators

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How WWF can help

How WWF can help – Banks and regulators

  Over 20 relationships with banks and other Financial Institutions globally

  OJK Indonesia Financial Services Authority

  China Banking Regulatory Commission - CBRC (Green Credit Guidelines)

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  Equator Principles   UNEP-FI   UN-PRI   Natural Capital Declaration   Banking Environment Initiative   International Integrated Reporting Initiative

(IIRC)

How WWF can help – Sector Level Engagement

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How WWF can help – Capacity, research, tools

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WWF IN SHORT

WWF is in over 100 countries, on 5 continents

+100

WWF was founded In 1961

1961

WWF has over 5,000 staff worldwide

+5000

WWF has over 5 million supporters

+5M

Photo: © Michel Roggo / WWF-Canon