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GFLP

Scaling-up Sustainable Finance

November 29-December 1, 2022

Kuala Lumpur, Malaysia

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Financial Sector: Critical Role in Scale Up Financing

Climate change mitigation and adaptation efforts urgently needed across Southeast Asia
Large needed investments will require private capital, supported by public financing
Financial sector: critical role supporting countries towards greater resilience and sustainability
But it must adapt to do so effectively:

Risks: Build stronger resilience to physical and transition risks
Opportunities: Catalyze private capital and efficiently allocate to sustainable investments

This report puts the spotlight on the Opportunities, focusing on the financial sector

ASEAN-5 (Malaysia, Indonesia, Philippines, Thailand, and Vietnam)

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Sustainable financial markets: impressive growth over the last 5 years

Sustainable debt markets: 2.5% of conventional debt markets (2021)
Private equity markets: 5% of sustainable debt (2017-2021)
Malaysia is ranked 36^th and the Philippines 40^th out of 76 economies with sustainable (2017-2021)

Impressive Growth in Sustainable Finance, But Untapped Potential

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Sustainable Finance Has Limited Reach

MALAYSIA

PHILIPPINES

JAPAN

Composition of Green Debt Issuances across Sectors, 2017-2021

Across Firms	< 100 firms (excl. financial firms) (2017-2021)
	Private equity markets: greater reach, but smaller volumes than debt markets
	Sizeable gaps for SMEs
Across Projects	Green debt accounts for the bulk of financing volumes
Across Sectors	Concentration in the energy sector

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Gaps in Information, Capabilities, and Investment Opportunities

Financial sector challenges to scale-up sustainable finance

Survey of 100 financial institutions in ASEAN-5 and frontier countries

GAPS IN CLIMATE-RELATED INFORMATION

Data availability and complexity of climate-related information
Data quality as reflected in a lack of reporting standards

LIMITED CAPABILITIES

Increased uncertainty and heightened greenwashing risks

LIMITED INVESTMENT OPPORTUNITIES

Arguably driven by limited pipeline of sustainability projects
Lack of capabilities in the private sector could partly explain lack of projects

Financial institutions use screening to integrate sustainability into investment decisions

Financial performance often prioritized over sustainability

Information: Access to information is critical for risk management, for greater transparency, to enable effective monitoring and evaluation frameworks to measure impact and outcomes.

Limited capabilities: Shortage of expertise to assess investment opportunities

Limited Investment Opportunities: suggesting that challenges can also stem from the private sector

Screening is a relatively simple strategy to adopt as it requires little analytical assessment. It is straightforward to screen out sectors with a negative impact on climate and the environment or to focus on “best-in-class” sectors with a positive impact. Hence, its widespread adoption might reflect, at least in part, the limited capabilities of financial institutions as well as information gaps.

Capturing the financial benefits of sustainable investments is not straightforward

Many benefits of mitigation and adaptation efforts are realized as avoided damages or public goods, rather than direct revenue streams.

Difficulties in accessing and using climate-related information exacerbate this challenge, constraining the assessment of financial performance of sustainable investments.

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Regulations Matter, But Effective Implementation is Critical

REGULATIONS MATTER

Economies with relatively more developed markets tend to have more developed supporting policy frameworks
Significant impact on sustainable financing from taxonomy adoption

IMPLEMENTATION IS CRITICAL

Policy frameworks are increasingly in place for ASEAN-5
Effective implementation still incipient

INCENTIVES FROM THE TOP

Mandate from board/top management: top driver of sustainable investments
Clear reference to sustainability in their institutions’ long-term strategies: less than 50% of FIs

Need for strong actions by the top echelon of financial institutions and governments

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Policy Actions to Mobilize Private Capital to Sustainability

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Readiness, e.g., by addressing the high riskiness of investments in sustainability

De-risk investments; foster risk diversification

Enabling environment to broaden financial market development

improving local financial market infrastructure

Analytics: Close data gaps and empower the various parties to use data effectively

Effective implementation of taxonomies and disclosure standards

Capabilities: building capabilities and enhancing “sustainable finance literacy”

Broad-based efforts: financial institutions, policy makers, and private sector

Transition: ensure a ‘just transition’

Segments that may be negatively impacted by the transition toward greater sustainability
Segments that face greater risks of exclusion from sustainable financial markets

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Policy Actions to Mobilize Private Capital to Sustainability

HOLISTIC APPROACH TO POLICY AGENDA

SUSTAINABILITY FOR THE PRIVATE SECTOR as part of complex policy landscape fostering sustainable investments for mitigation and adaption

RISK MANAGEMENT POLICIES as they interact with those aimed at catalyzing private capital

POLICY COHERENCE and coordination across the various policy makers

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For more information,�please download the full report

https://bit.ly/SFSEAreport

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TEAM CONTACT INFORMATION

Tatiana Didier	Cheng Lin
tdidier@worldbank.org	chengl@ifs.net.cn
World Bank Group	Institution of Finance and Sustainability