Banks in Asia Pacific continue to lag behind global peers with regards to sustainability, according to a recent study by Mazars, highlighting room for improvement across governance, risk management and disclosures.

Overall scores for APAC lenders across governance, risk management and disclosures fell behind global peers, according to audit, tax and advisory firm Mazars’ global sustainability study which is in its third year of publication. 

«The pandemic has served as a wakeup call for financial institutions in APAC to strengthen their efforts in reorienting capital flows and financing innovation in support of low-emissions sustainable development,» said Justin Tan, partner, financial services consulting APAC. 

«The diverse region faces a lack of standardized regulation and reporting methodology, where regulators in each market predominantly work in isolation. With Asia being the largest primary energy consumer, regulations must be bolstered to encourage sustainability-decision making and drive the ESG agenda.»

Divergence in the Region

While the report said that «APAC banks need to make up ground fast», it notes that there are «significant discrepancies» in the region between the best-performing countries and China.

An unnamed Australian lender was ranked as a «leader» in sustainability with strong performance in governance and risk management.

The report assessed 37 banks worldwide with six in the APAC region including two Chinese banks – ICBC and Agricultural Bank of China.

Global Progress

Nonetheless, global peers continue to make progress with fulfilling their sustainability commitments. 

66 percent of banks worldwide now include sustainability criteria in variable remuneration, compared to 41 percent last year.  

And 92 percent have aligned sustainability reporting with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), compared to 76 percent last year.

Room for Improvement

Still, there is room for improvement especially with regards to actual financing activities. 

Currently, only 33 percent of banks identify clear criteria linked to both internal sustainability initiatives and financing activities with just 24 percent having set net-zero financed emissions targets in line with the Paris Agreement objectives. 

Although 70 percent are building scenario analysis and stress testing capabilities only 19 percent make disclosures on the materiality of climate risk through credit or market risk metrics.

«Banks are increasingly committing to making their practices more sustainable, and this has led to progress since our previous studies,» said partner Phuong Gomard. «The findings are encouraging, but they also reveal the work that remains to be done, especially in regions where ESG-related regulations and guidance are yet to be developed.»