These reforms require banks to assess, manage, and report on environmental, social and governance (ESG) risks in their lending operations and put market incentives in place for banks to lend to green projects.
Of the 38 countries, 22 have adopted national sustainable finance policies and voluntary principles, seven of which were launched in 2019 alone. The report also captures the progress made by 14 countries to actively grow their green bond markets; and data shows increasing innovation by financial institutions to green their lending portfolios.
“SBN members have demonstrated that transforming financial markets toward sustainability is possible,” said Georgina Baker, Vice President of IFC, World Bank Group. “Emerging markets are on the forefront of this shift – and SBN’s tools and guidance have laid the groundwork for more countries to follow suit.”
In 2018, the State Bank of Vietnam approved the program on green bank development and an action plan to realize Vietnam’s sustainable development goals by 2030. To enforce the incorporation of ESG risks into lending decisions, the regulator has set two targets by 2025—the setting up of an E&S management system in all financial institutions and integrating environmental and social risk assessment into credit risk assessment. Further, it is a priority to establish specialized units for environmental and social risk management and green finance in at least 10 to 12 banks.
A recent survey by the State Bank of Vietnam in early 2019 revealed that 76 percent of participating banks have had sustainable finance strategy in place. Seventeen banks had set up E&S systems to comply with the regulatory requirements and 25 banks had conducted risk-based E&S due diligence for their corporate and project financing transactions.
“It is encouraging to see Vietnam’s major progress among its peers in this report—the most comprehensive benchmark of regulatory and industry-led initiatives on sustainable finance across emerging markets,” said Nguyen Quoc Hung, Director at Department of Credit Policies for Economic Sectors, State Bank of Vietnam. “Vietnamese banks have shown their readiness in pursuing a sustainable finance agenda, which is essential for capturing new business opportunities.”
In addition to providing practical resources for countries undertaking sustainable finance reforms, the SBN report also highlights the peer-to-peer knowledge sharing of members – a hallmark approach of the network.
“The report captures the real-world experience of SBN members to develop sustainable finance,” said Imansyah, Deputy Commissioner of International and Research, Indonesia Financial Services Authority (OJK), and a co-Chair of the SBN Measurement Working Group. “Sharing lessons and knowledge among members has been an important catalyst to drive finance reforms, particularly as countries embark on these efforts.”
Established in 2012, SBN now represents $43 trillion (86 percent) of banking assets in emerging markets. The report is based on an innovative results-measurement approach developed by SBN members as they work to convert sustainable finance policy reforms into practical implementation and behavior change across the banking sector.