Fair Finance Asia (2024, December). Empowering Consumers as Drivers of Sustainability in Asia’s Financial Sector.
On December 4, 2024, International Day of Banks, Fair Finance Asia (FFA) published a new scorecard assessing the extent to which Asian banks enable consumers to actively contribute to positive sustainability outcomes.
FFA’s scorecard, Empowering Consumers as Drivers of Sustainability in Asia’s Financial Sector, benchmarked the policies of 15 banks across Cambodia, Indonesia, Pakistan, the Philippines, and Thailand in four key areas: financial inclusion, consumer protection, financial literacy and education, and engagement and accountability mechanisms.
While banks scored better on average in financial inclusion (5.2/10) and consumer protection (5.5/10), they scored poorly on engagement and accountability mechanisms (1.3/10). Across four key areas, the assessed banks scored 3.5/10 on average. These scores highlight the need for Asian banks to balance inclusion goals with financial literacy and consumer empowerment initiatives to ensure that their clients are not only meaningfully informed about their sustainability strategies and financing practices, but are also able to hold them accountable for implementing these strategies and commitments.
In collaboration with national coalitions, Fair Finance Cambodia (FFC), ResponsiBank Indonesia, Fair Finance Pakistan (FFP), Fair Finance Philippines (FF Ph), and Fair Finance Thailand (FFT), and research partner, Profundo, FFA calls on Asian banks to strengthen their commitment to sustainability by facilitating enabling mechanisms for consumers and bank clients to take action and become partners in driving social and environmental sustainability.
Why is this scorecard important?
The Asian financial sector is transforming; consumers are increasingly expecting transparency and accountability from financial institutions. The FFA network calls on banks to respond by educating and engaging with consumers and their clients, empowering them so they can make smart financial decisions that align with their values, and enabling them to be partners in sustainability. Hand in hand with their inclusion objectives, financial institutions must also act responsibly in their relationship with their clients and consumers, taking into account the importance of their rights, financial literacy, and empowerment enabling enhanced engagement as sustainability partners that can hold them accountable for their sustainability policies and practices.
Who are the target audiences and beneficiaries of this scorecard?
The scorecard informs Asian banks and financial regulators about their critical role in creating an enabling policy environment that empowers consumers to actively contribute to positive sustainability outcomes. It is important to note that in this scorecard, the term “consumers” refers to retail banking clients: individuals and Micro-, small- and medium-sized enterprises (MSMEs).
The scorecard also supports strengthened consumer empowerment advocacy, calls to action, and recommendations by Asian civil society organizations (CSOs) through improved understanding of the gaps across four key areas: financial inclusion, consumer protection, financial literacy and education, and engagement and accountability mechanisms. The scorecard may also be of interest to consumer associations, international organizations, donors, stakeholders, and advocates working on, or interested in, financial inclusion and areas of accountability mechanisms in Asia, and in the five focus countries: Cambodia, Indonesia, Pakistan, the Philippines, and Thailand.
What is the assessment framework/methodology for the scorecard?
The assessment framework was developed in collaboration with research partner, Profundo, based on the Fair Finance Guide International (FFGI) Methodology 2023, the Driving Impact on Financial Health and Inclusion of Individuals and Businesses 2024 guidance by the Principles for Responsible Banking, and in line with best practices and international standards. It assesses the publicly available data and information on the sustainability policies of the selected banks as of September 1, 2024. It includes press releases from the banks addressing relevant content from less than a year old. All financial institutions assessed were given the opportunity to comment on the detailed draft results of the assessment (provided in Excel format) during one round of feedback. When requested by the banks, representatives from Profundo, FFA, and the national FFA national coalitions held online meetings with the banks to answer questions and provide additional information on the research. Feedback from banks was analyzed, and when substantiated and aligned with the methodological approach, it was integrated into the final assessments.
What is the rationale for the country selection?
FFA national coalitions in the focus countries regularly conduct bank policy assessments applying the FFGI methodology. These five countries have been selected because Fair Finance coalitions active in these countries actively advocate, through their policy assessments and related case studies, for responsible policies and practices related to financial inclusion, consumer protection, financial literacy, and accountability mechanisms. This is a small sample group of FFA countries selected for an initial analysis of the consumer empowerment initiatives. Other FFA countries could also be potentially included in similar future assessments.
Why is it the banks’ role to educate and empower consumers and clients to act on sustainability issues?
Sustainability is a shared responsibility. Financial institutions should view their clients as indirect shareholders and, therefore, enhance efforts to facilitate their active engagement in supporting greater transparency and accountability in their core business and investment decisions. While this concept of consumer empowerment may be new to Asia, there are some examples from other regions of how consumer and client engagement can support in enhancing transparency and accountability in the financial sector, leading to better sustainability outcomes.
What is the role of financial regulators in enhancing consumer empowerment for sustainability?
In Asia, active regulation has played an instrumental role in improving financial inclusion and financial consumer protection over the years. Building on the progress made in these areas, financial regulators can further create an enabling and empowering policy environment for consumers to be educated and engaged on sustainability issues.
An example that Asia can learn from is, Markets in Financial Instruments Directive II (MiFID II). MiFID II, applicable since 2018, is a regulatory framework by the European Union aimed at enhancing transparency, investor protection, and the efficiency of financial markets. It incorporates sustainability by requiring financial advisors and portfolio managers to consider clients’ sustainability preferences in investment decisions and by promoting the integration of environmental, social, and governance (ESG) factors into financial services.
Empowering bank clients and consumers to actively engage in sustainability issues can also support and complement other policy initiatives relating to green and just transition by facilitating enhanced transparency and accountability in the financial sector.
Is there a role for other financial sector stakeholders?
Yes, the scorecard highlights a big gap in financial literacy and education which can be filled by stakeholders and organizations with existing expertise or related initiatives promoting financial inclusion, sustainability, accountability mechanism, and just transition.
How is this scorecard different from FFA national coalitions’ policy assessment?
The assessment framework is designed specifically to focus on consumer empowerment, including the efforts made by banks to educate consumers on sustainable finance and promote the offer of sustainable products and services. It also offers a cross-regional perspective comparing the policies of 15 banks across five countries.
The FFGI methodology used by FFA coalitions for national policy assessments look at a broader range of themes such as, but not limited to, climate change, gender equality, human rights, and anti-corruption to benchmark the overall progress in the sustainability journey of national financial institutions.
What are the next steps after this scorecard?
In 2025, FFA national coalitions will leverage the scorecard to lead national-level advocacy and campaigning for enhanced consumer empowerment, in partnership with FFA’s Regional Team and regional and international consumer organizations. The FFA network will also conduct in-depth case studies to provide a fuller picture of the impact of Asian banks’ consumer empowerment policies, and information on national and regulatory landscape related to the areas addressed and practices, or the lack thereof.
More information
To access the scorecard, click here.