The Crucial Role of Financial Institutions in Asia and the Pacific's Climate Change Battle

Financial institutions have a major role to play in addressing climate change. Photo: ADB
Financial institutions have a major role to play in addressing climate change. Photo: ADB

By Lotte Schou-Zibell

Climate change is hitting Asia and the Pacific hard, with many countries ill-prepared for the crisis. Yet, financial institutions stand poised to make a difference if they promote sustainable practices and receive the right support.

People in Asia and the Pacific are on the front lines of climate change. Many developing Asian countries have been identified as among the hardest hit by the climate emergency, and yet these countries are also among the least equipped and resourced to respond. 

Financial institutions have a unique opportunity to help address this situation. They can advise and guide their customers toward sustainable financial choices, promoting the adoption of low-carbon alternatives. These choices can have an impact on achieving net zero, defined as when a country’s emissions are offset by an equal amount of emissions being removed or reduced. 

 Financial institutions can use their wealth of financial data to provide insights on sustainable spending practices and track customer progress in reducing carbon footprints. They can promote investment in renewable energy and energy-efficient technologies by offering lower interest rates or extended loan repayment terms. 

By harnessing digitalization in their financial services, they can encourage eco-friendly spending decisions through prompts and gamification techniques.  With two-thirds of adults worldwide making or receiving digital payments, financial institutions can significantly drive positive change toward sustainability, including in developing countries where digital payment usage has risen from 35% in 2014 to 57% in 2021.

Small and medium-sized enterprises (SMEs) must transition to net zero-aligned operations for a net zero economy to be realized, as they make up approximately 99% of all businesses worldwide. Several initiatives are supporting SMEs in this effort, such as United Overseas Bank's Carbon Insights feature, which provides tailored carbon information based on spending and saving habits. 

IDLC Finance in Bangladesh offers green finance for green products and sustainable finance for cottage, micro, small, and medium enterprises; agriculture; and socially responsible projects; while Sri Lanka’s Commercial Bank of Ceylon has launched green development loans for SMEs at below-market rates.

Specialized nonbank financial institutions, such as the Indian Renewable Energy Development Agency Limited, are promoting renewable energy and energy efficiency projects, aligning with national net-zero emission targets like India's 2070 goal.

 There are many solutions that financial institutions can offer but there are also significant challenges.

The real estate sector, responsible for nearly 40% of carbon dioxide emissions, can also contribute to climate action. Green mortgages incentivize borrowers to purchase or upgrade properties meeting specific environmental standards through reduced interest rates or higher loan amounts. 

IIFL Home Loans in India recognized a gap in the market between the availability of new energy conservation methods throughout a building's life cycle and the need for increased knowledge about green building concepts among potential developers across the country. To address these issues, they introduced the Green Value Partner program, which aims to reduce negative environmental impacts by supporting the development of green, affordable housing in India. Similarly, CIMB in Malaysia offers preferential Green Building Index rates for customers purchasing green-certified residential properties.

In Malaysia, Maybank launched the "Go Green with #MaybankHomeFinancing" campaign in 2021, providing eco-friendly prizes, such as solar panels, energy-efficient refrigerators, or vertical farming systems, to homebuyers of green-certified properties, along with options for installing solar panels at a reduced cost. Maybank Singapore also introduced the Green Home Loan campaign in early 2023, offering e-voucher rewards to buyers of Green Mark Certified homes in support of sustainability and digitalization initiatives.

Payment platforms, such as Alipay's Ant Forest, can be powerful tools for climate action. By gamifying low-carbon lifestyle choices and reforestation efforts, these platforms can encourage users to adopt more sustainable behaviors. Since its introduction in 2016, Alipay Ant Forest has encouraged 650 million online users to make low-carbon lifestyle choices. Similar initiatives like GForest in the Philippines' GCash app are contributing to reforestation efforts.

There are many solutions that financial institutions can offer but there are also significant challenges. These include the need for accurate data and measurement; a lack of consensus on net zero definitions; transitioning portfolios away from high-emitting sectors; finding suitable low-carbon investment opportunities; uncertain regulatory and policy environments; and engaging stakeholders in the transition process.

Financial institutions can harness sustainability-enriched data and digitalization to inform customers about their environmental impact and promote long-lasting behavioral change. By making sustainable behavior more enjoyable, accessible, and convenient, these institutions can contribute significantly to a more sustainable future.