As many around the world begin to feel the increased hope of being able to return to “normal”, the situation in India and other developing countries remain an unsettling reminder that the fight against COVID-19 in the Asia Pacific region is hardly over. It’s a stark indication that the pandemic which already pushed back an additional 89 million people into extreme poverty will continue to impact the region’s progress towards achieving the Sustainable Development Goals (SDGs). Based on current trajectory predictions, the Asia Pacific region is on track to achieve just 10 percent of its SDG targets by 2030, which makes a compelling argument to use this opportunity to build back better towards a future that is more resilient, inclusive, and sustainable.

The private sector has a crucial role in accelerating this much needed transition, specifically underscoring the role of the Asia Pacific’s financial sector. Sustainable finance has seen a near 30 per cent growth in 2020, and sustainable index equity funds also outperformed regular index funds in developed as well as emerging markets. There is clear momentum for sustainable finance in the region, which could be an important lever for change among Asian economies.

Asia at a tipping point

In the past couple of years, Asia has been witnessing increased momentum in policy action supportive of environmental and social objectives aligned with the SDGs and the Paris Agreement. Notably, Thailand and Japan have both published their National Action Plans (NAPs) on Business and Human Rights, with Japan also updating its corporate governance code. India updated its national guidelines and reporting framework on responsible business. On the climate front, some of Asia’s biggest economies, China and South Korea announced national net zero emission targets, with Japan following suit and recently releasing its climate transition finance guidance. ASEAN members states are also exploring the potential of jointly developing a sustainable finance taxonomy, given that a few of its members states already have existing frameworks and roadmaps, including Indonesia and the Philippines. More recently, Malaysia released its principle-based climate change taxonomy, followed by Singapore’s green finance white paper and climate disclosure requirements for financial institutions. 

Sustainable finance: critical pathway to Asia’s recovery and just transition  

Asian financial institutions play a key role in overall economic development by funding diverse projects and sectors, thereby significantly impacting the trajectory of regional growth and recovery, as well as the effectiveness of initiatives implemented to promote climate change adaptation, respect for human rights, and even political stability, among other issues. These influences become even more critical in light of the new challenges and increased inequalities exacerbated by the COVID-19 pandemic, particularly for many Asian economies driven largely by the informal economy and migrant workers in sectors such as textiles and agriculture.

However, Asian financial institutions have generally had no binding obligations to prevent the negative consequences of their activities – neither towards the environment nor communities. Though that is gradually changing, it’s not changing fast enough to support the swift mitigation of the widening impacts of the pandemic or to put an end to the harmful practices and activities that compromise the region’s capacity to mitigate climate change.

Earlier this year, Fair Finance Asia and the World Benchmarking Alliance jointly provided inputs and recommendations in line with the consultations held around the development of Singapore’s green finance taxonomy. While the inputs and recommendations were specifically responding to the Singaporean context, both organizations have also been tracking the development of other sustainable finance policy guidance and frameworks across the region, and recognize recurring themes worth highlighting.

There is a need to establish mandatory environmental, social and governance safeguards. While the recent emphasis to develop policies, standards, and taxonomies to safeguard the environment are much welcome and urgently needed, the development of social and governance safeguards must be treated with equal emphasis for a just and sustainable transition in Asia. Sustainability frameworks that are developed must adhere to international standards and link with complementary initiatives, where possible. 

Mandatory disclosure policies and transparency requirements are crucial to enabling relevant stakeholders to hold the financial sector accountable. It is important to put in place mechanisms to facilitate access to relevant data and information necessary to build meaningful and inclusive stakeholder engagement that includes communities and civil society. Additionally, the engagement should be continuous and should cover every step in the overall process, including objective setting, tracking of progress, and reviewing standards which are key to improving the frameworks in place. 

Commitments and action plans developed must be clear, time-bound, and comprehensively addressing all areas under ESG. Moreover, action plans must include detailed exit strategies from socio-environmentally harmful businesses, sectors, and practices as well as provide clear approaches to transition trajectories and pathways.  

Regional policy coordination is taken seriously into account to ensure harmonization of standards and reporting frameworks to the extent possible. Nations within the Asia-Pacific region need to step up cooperation to ensure responsible cross-border financing. There is a need to ensure private and financial sector sustainability disclosure data are consistent, comparable, and reliable across the region to support more effective mitigation of sustainability risks, as well as scale up of solutions.

Closer to this year’s COP26, it is expected that many other Asian countries, companies, and financial institutions will be launching their own targets and commitments in line with the Paris Agreement. With the upcoming G20 presidencies of Indonesia and India in 2022 and 2023 respectively, Asia only gains more opportunities to demonstrate its leadership in sustainable finance. While it is important that the change begins at home – by developing clear sustainability frameworks, taxonomies, and roadmaps – it is equally crucial that no one country gets left behind. After all, Asia’s regional ambitions for sustainability are as intertwined as its economic interdependencies.

Written by:

Bernadette Victorio, Program Lead, Fair Finance Asia

Namit Agarwal, Asia Policy Lead, World Benchmarking Alliance