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Asia’s major banks fall behind on decarbonisation efforts

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Asia’s major banks are falling short on commitments to decarbonisation initiatives, a report has found.

While many of Asia’s governments have declared long-term net zero targets - including China, which finally made the commitment in 2020 - their financial institutions have not.

The report from Singapore-based environment group Asia Research & Engagement (ARE) said they can mitigate future risk by setting funding strategies that adhere to market developments that favour climate-positive business ventures.

However, it warned that a “reactive approach”, where practices are only shifted in the face of tighter carbon regulation, would negatively impact their business in the long term.

The report looked at 32 leading banks listed in nine major Asian markets and found they have not kept pace with changing expectations when compared with banks in other markets.

“Asia’s banks are mispricing exposure to carbon-intensive assets that are increasingly difficult to re-finance or transfer,” ARE said. “Without urgent course correction, widespread misallocation of capital will continue, leaving the region vulnerable to correction.”

Last month, a UN report found that climate change is causing widespread loss and damage to lives, livelihoods, homes and natural habitats and anticipated ever-more severe effects in the future.

ARE said that Asia’s banks would be “critical” for helping the world move away from high-carbon economies, but said that none of them follow Paris Agreement objectives and most are “misaligned” with national policies for decarbonisation in the countries in which they are based.

Five banks were given the lowest rating because they had “barely started” their journey towards climate readiness, including China’s Bank of Ningbo, Ping An Bank and the Shanghai Pudong Development Bank.

None of the banks in the report had policies on coal power – the most carbon intensive fossil fuel – that fully align with the Paris Agreement, although 13 of the 32 banks (41 per cent) did have some form of “no new coal” policy covering key markets.

ARE said that stress tests undertaken by the Swiss Re Institute found that GDP in 2050 would be 18 per cent lower than a world without climate change if no action is taken.

Asia would be the hardest hit region and is at risk of losing nearly 26.5 per cent of its GDP in a severe scenario.

“The report shows that there is a long way to go,” ARE concluded. “Yet there are also grounds for optimism. Across Asia, both the banking and asset management industries are building capacity to address exactly the issues highlighted in our research.

“While there are still relatively few banks that have climate targets or scenario analysis, the number is increasing. But the pace of change needs to accelerate to meet the scale of the climate challenge.”

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