FIs Serious About ESG Should Factor in Non-Financial Metrics
Having the «ESG» label on financial products may be trendy now, but financial institutions serious about realising ESG goals need to ask their stakeholders what non-financial metrics they want.
There is a «systemic mis-selling of green financial investment products» as bank staffs or asset managers rush to bank in on the ESG theme to push their sales, said Jakob Thomas, managing director of of 2 Degrees Investing Initiative who was speaking at the launch of Asia Sustainable Finance Initiative (ASFI) on Tuesday.
«Many clients want non-financial metrics incorporated into their return metrics. Banks who are not responding to these needs will have their own sustainability issues down the road,» Thomas added.
Singapore Still in Early Stages
Experts during the launch of ASFI shared that non-financial metrics could come in the form of ongoing sustainability monitoring via databases, livelihoods impacted, or benchmarking against peers for carbon management using science-based tools.
Although Singapore is still in the early stages of mainstreaming the integration of sustainability into finance, the city-state has seen some initial success in the debt capital market. The first green bond was launched in April 2017 by property developer City Developments. A few months later, DBS partnered Impact Investment Exchange (IIX), listing on Singapore Exchange the world's first listed social bond – a $8 million Women's Livelihood Bond.
«This was to be the first of a series of bonds targeting a total of $100 million aimed at empowering one million underserved women in Asia to transition from subsistence to sustainable livelihoods,» said Indranee Rajah, second minister for finance and education at the event.
Path Ahead
Helping investors realise the tangible value in sustainable development would drive wider adoption of ESG goals throughout the industry, said Rajah. The first way is by implementing credible standards, which has yielded initial results for Singapore's banking and capital markets.
«Our banks have been able to identify investment activities that pose higher risk to the environment, and integrate responsible financing practices into their business models in Singapore. They have done so by building on the banking industry's Guidelines on Responsible Financing issued in 2015,» she said.
Potential Loss Calculations
The second way is to deepen research and development in ESG products. For example, Singapore university NTU's Institute of Catastrophic Risk Management (ICRM) is a project that establishes a Natural Catastrophe Data Analytics Exchange, which aims to create a comprehensive and interactive economic loss database for natural catastrophes.
The third way is to strengthen partnerships and explore collaborative projects to realise the full potential of sustainable financing.
