October 20, 2015

Wanted: Sustainable Finance in Malaysia

Wanted: Sustainable Finance in Malaysia

Malaysia must put its money where its mouth is if the country is to achieve sustainability. Photo Credit: Stardex via Flickr

“Whether it is air pollution in China, haze in Singapore, or water scarcity in India, the evidence that environmental and social issues present growing risks to economic growth is mounting across Asia.”

Thus begins the executive summary of a brand new World Wildlife Fund (WWF) report singling out banks in Malaysia, Singapore and Indonesia.  Unlike most finance sector reports, this one focuses not just on dollars and cents, but on the way they can affect the environment.

Banks in Singapore, Malaysia and the Philippines do a lot of lending to companies that burn, cut down or otherwise destroy tropical forest.  In doing so they are enabling industrial activity that – although profitable in the short term – will sink the economies they now support by throwing society and the environment out of balance.

The WWF report revealed that only four of the 18 banks analyzed even considered sustainability in their credit processes.  Beyond that, clear guidelines and policies relating to environmental and social governance were few and far between, few banks disclosed the corporate governance and voting policies they apply to their portfolio companies, and it was determined that the banks in general were underperforming where sustainability is concerned.

Many of the palm oil, timber and paper companies contributing to global warming, flash floods, haze and human rights violations are operating on domestic bank loans.  The general rule in Malaysia so far has been that no matter how many regulations are set for palm oil and timber companies, if they’ve got the money, they’ll do what they want.  Stopping the environmental devastation at its source with responsible lending could be one of the only reliable ways to reign in illegal or environmentally harmful activity.

Global banking companies have successfully woven sustainable finance into their lending policies, and it’s time domestic banks did the same.  These organizations ultimately decide who does and doesn’t get funded.  It is their loans and investments that push their countries further towards social and environmental decay.

WWF is now working with these banks to conduct sustainability workshops and possibly develop a task force on the subject within the Association of Banks in Singapore.  The reaction of the banks themselves is yet to be truly seen, but apparently Malaysia is already preparing to take action.  Environment Minister Datuk Seri Wan Junaidi Tuanku Jaafar said the government would work with financial institutions to restrict loans.

“We are working with the banking sector to devise a mechanism (in which) the banks will either discontinue or limit the financial facility offered to companies who damage the environment, regardless whether there are construction, manufacturing, plantation or agriculture companies,” Wan Junaidi said on October 17 after officiating at the national level Malaysian Environment Week.

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