The financial services sector in the Asia-Pacific region is increasingly stepping up efforts to align with the sustainability goals, playing an important role in addressing issues of climate change and the preservation of the environment. However, the journey toward robust stewardship of the environment, and climate resilience, as highlighted in the latest report of Sustainability Counts III, remains a complex challenge.
The report states that 52% of financial institutions in the APAC region have set net-zero targets, indicating a growing sense of awareness and commitment toward decarbonization. Even so, only 8% of those institutions had validated Science-Based Targets, which are aligned with a very strict criteria for science-based targets that are necessary to limit global warming. Low adoption of SBTi standards shows that compliance is rather challenging, but this might be changed with the entry of the Financial Institution Net Zero (FINZ) standard. The study could trigger FINZ to drive the adoption of scientifically valid frameworks at a wider level.
Scenario analysis is becoming increasingly important for the assessment of climate risks and is slowly becoming adopted by APAC financial institutions. Currently, only 25% of firms combine quantitative and qualitative scenario analyses within their management of risk. This, however, will increase following the increased expectations from authorities in regards to regulatory provisions. Some institutions, just like the Hong Kong Monetary Authority and New Zealand’s Financial Markets Authority, require scenario analysis when developing climate risk management frameworks. Experts also say that starting with qualitative methods will open the door for more rigorous quantitative assessments that can help institutions build resilience against future uncertainties.
Biodiversity and nature-related disclosures are another emerging focus area. Almost half of the financial institutions in APAC have started to include biodiversity in their sustainability reports, an acknowledgment of the importance of nature in economic and environmental stability. However, engagement with frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) is still in its infancy. International initiatives, such as the Glasgow Financial Alliance for Net Zero’s (GFANZ) nature-related guidelines, are expected to accelerate the integration of biodiversity metrics into financial strategies. This urgency is underscored by a joint report from the Asia Investor Group on Climate Change (AIGCC) and PwC China, which states that 53% of APAC’s economic value depends on nature, highlighting the pressing need for action.
Financial institutions have a very important role in driving sustainability across their portfolio companies and borrowers. Real-economy decarbonization will depend on these institutions setting aggressive net-zero targets and conforming to international standards. Incremental adoption of scenario analysis, beginning with qualitative approaches, will allow firms to improve the sophistication of their climate resilience planning. Finally, integrating biodiversity metrics into sustainability strategies is increasingly becoming a strategic imperative: aligning financial performance with environmental stewardship.
As sustainability reporting continues to mature, forward-thinking financial institutions in APAC use the emerging practices to integrate long-term environmental goals into the bottom line. Through doing so, they prepare themselves not only for regulatory expectations but also to position their businesses as leaders in transitioning toward a sustainable economy on the global level.