Introduction

This study, co-written by CEFIM and WWF Singapore, highlights good practices among leading banks headquartered across ASEAN on financing clean energy projects to illustrate the role of government as well as internal bank decision-making systems in supporting clean energy investments.  By sharing different country and bank experiences, this report aims to increase visibility and awareness of clean energy finance opportunities as well as improve understanding of the growing exposure to transition risks related to future stranded assets and the need to shift portfolios towards clean energy technologies.

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The annual average clean energy market in ASEAN over the next two decades could be worth an estimated USD 80 billion, assuming countries implement policies and clean energy targets in line with the Paris Agreement.[1] This would represent a scale-up of 4-5 times 2020 investment levels. Much of the clean energy market can and will be financed by the private sector, especially commercial banks, and will require both domestic, regional and international sources of capital.

Expectations that the clean energy market will significantly increase are well founded. This stems from the consensus of the world’s most prominent scientific and political institutions that a climate crisis is occurring with significant economic ramifications and that the current energy system is the major driver. An energy transformation comparable to the industrial revolution must occur to limit the increase in global average temperature to internationally agreed targets.

Investments in renewable energy and energy efficiency are paramount to existing and future regional efforts to meet decarbonisation commitments. Currently, five ASEAN countries have either proposed or declared a commitment to reach net-zero emissions by 2050.[2] Increasingly, municipal governments are also making climate commitments.[3] This is significant as activities in and around cities are responsible for approximately 75% of global primary energy consumption and 60% of total greenhouse gases emissions.[4]

Decarbonisation efforts will inevitably create stranded assets and rapidly shift capital to low carbon technologies. Banks are exposed to this transition as significant proportions of their portfolios and clients are either directly linked to the energy sector or sectors where decarbonisation efforts are being implemented.

Regulators across the ASEAN region are increasingly addressing climate-related financial risks, including via micro-prudential measures and by supporting the creation of green/sustainable finance taxonomies. Regulators across the world are also increasingly affecting the ASEAN region, most notably the ”EU taxonomy”[5] which governs financial flows within and those originating within but flowing outside of the European Union. These measures will require banks to make internal adjustments accordingly, ultimately culminating in enhanced negative environment social and governance (ESG) screening processes, strategies to facilitate clients to decarbonise, business lines for ESG opportunities and enhanced portfolio management. 

 

Clean energy finance indicators

While the analysis tries to develop some common indicators across the banks interviewed, different reporting protocols at the country level as well as public disclosure at the bank level make this challenging and highlights major data gaps. A common sustainable or green finance reporting framework for ASEAN financial institutions with granular detail on key sectors would help to identify financing gaps, track progress and support policy analysis.  While sustainable finance regulation or strategies in different ASEAN countries have reporting requirements, these tend to note be prescriptive and banks and other non-bank financial institutions can determine what information to report. Further collaboration among financial regulators and relevant government policy makers in ASEAN could help to address this data gap and develop common clean energy finance indicators. This would help to identify effective policies and frameworks at the country and firm level and facilitate progress reporting. 

  

The clean energy finance indicators for the banks interviewed highlighted a growing clean energy lending market, although annual growth data reported was inconsistent across banks and hence a comparison is not possible. The share of clean energy within lending portfolios ranged from under 0.2% to a high of 6%. The energy sector represented between 5.24% and 12% among banks, although often this information was unavailable. However, it highlights a substantive exposure to the energy sector across banks with significant potential to shift from traditional energy to clean energy projects. While some data on renewable energy financing is available, data on energy efficiency lending proved particularly difficult and for the most part the data provided represents financing for renewable energy projects.  In general, with the exception of BIDV that has been very active in the solar roof top market, the banks interviewed and provided data have focused on utility scale renewable energy projects where average transaction sizes are larger. For most banks, the number of projects financed and the total lending provided indicates that this is still an early lending market with substantial growth potential.

 

Drivers for mobilising clean energy finance

A comparison of the different drivers for clean energy finance development of the banks interviewed within ASEAN highlight a number of similarities including the importance of training and capacity building and favourable outlook for the clean energy, and in particular the renewable energy market.

 

Overview of study framework on the five Ps: Policies, Processes, People, Products and Portfolios

A short survey was administered through interviews to five banks in different ASEAN economies to assess the key drivers and factors for increasing lending to clean energy projects.  The questions and each of the following bank case studies are structured around the following areas: policies, processes, people, products and portfolio.

 

Framework areas	Rationale
Policies	Ensure intentions are embedded into daily business operations
Processes	Integration of criteria into client and transaction approval decision-making systems provide enforcement with consequences for non-compliance
People	Effective implementation of policies and processes requires sufficient staff capacity and clear allocation of responsibilities that are linked to enumeration systems
Products	Enable banks to move beyond negative ESG screening and evolve towards tapping into business opportunities
Portfolios	Assessment of risks at client and transaction level only provides a micro-level snapshot of issues that ultimately accumulate and must be managed at the portfolio level

 

Lessons from case studies

The study revealed several interesting findings in terms of important drivers, trends and success factors across the five banks interviewed. For each of the case studies, one feature or lesson learned was selected to be highlighted that other banks in the region could benefit from as they look towards developing their clean energy finance activities.  These lessons include potential solutions to unlock international capital, build project pipelines and support the development of capital markets and the role of international collaboration in developing sustainable finance capacity. 

• Green, Social and Sustainability Bond Framework: Bank Mandiri published its Green, Social and Sustainability (GSS) Bond Framework to outline the conditions to which the Bank will issue green, social and sustainability bonds to fund future financing of green and social projects. The Framework aligns with international standards and follows those of both the International Capital Market Association (ICMA) Green, Social and Sustainability bond principles, as well as the ASEAN Green, Social and Sustainability Bond Standards developed by the ASEAN Capital Market Forum (ACMF). Other banks covered in this report also have such frameworks that facilitate issuances and provide potential investors with confidence and help to address concerns of green washing and other banks in the region may want to consider the development of frameworks that align with international standards.
• Role of international initiatives: CIMB has utilised multiple international banking initiatives such as UNEP FI Principles for Responsible Banking, Collective Commitment to Climate Action, and more recently its Net-Zero Banking Alliance to fast-track internal efforts to integrate sustainability as a core business strategy. The various international commitments and groups which CIMB has joined have provided CIMB access to capacity building opportunities as it became part of a wider group of banks attempting to resolving problems as a community-of-practice, opening up space for CIMB to learn first-hand from leading banks around the world. Participation in international initiatives can be a good way for banks and other financial institutions to quickly develop and adopt internationally recognised good practices. 
• Innovations in sustainable finance can also come from smaller banks: RCBC has demonstrated that advancing ahead with sustainable finance initiatives is not only achievable by the largest banks. The total assets of RCBC are approximately one quarter of BDO Unibank, the largest bank in the Philippines. However, in many respects RCBC outperforms this and other larger banks, regarding internally adopted sustainable finance measures. This has facilitated RCBC to innovate, such as changing business models and tapping into new investor demand for sustainable investments. RCBC explicitly aims to increase the positive investment ratio of its sustainable portfolio relative to coal, align business strategy with national priorities, and manage its portfolio to create more value and benefits to its stakeholders.
• Partnerships to build clean energy project pipelines: UOB U-Solar and U-Energy programmes are Asia’s first fully integrated solar energy and energy efficiency financing platforms. Through these platforms, UOB maximises the benefits of adopting a value-chain approach, promoting awareness and co‑ordination across developers, contractors, operators and end-users. The programmes proactively target local champions or partners to drive growth of the bank’s solar and energy efficiency business. The U-Solar and U-Energy programmes provide potential customers with specific information on the economic benefits of integrating solar into their business and cost effective energy efficiency investments. Establishing partnerships with clean energy developers can help to reduce origination and project due diligence costs, facilitate standardisation of evaluation processes and scale up clean energy finance portfolios. 
• Shifting to guarantees for offshore lenders to lower financing costs and access additional capital: As BIDV starts to face liquidity constraints, it is shifting from direct lending for renewables to a focus on the provision of guarantees to offshore lenders. As a guarantor, BIDV can continue supporting the finance of renewable energy projects by helping projects reach international bankability criteria and providing developers with access to lower cost international capital. Partnering with international banks also helps BIDV to benefit from the experience and knowledge of international partners in financing larger renewable energy projects. A shift from direct lending to provision of guarantees can be an effective way for banks with limited long-term capital to continue growing its clean energy financing activities and gain experience and knowledge from international lenders.

 

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