Factors Affecting the Environmental and Social Risk Management of Financial Institutions in Selected AsiaPacific Developing Countries

Considering the significant effect financial institutions (FIs) have on society and the environment, they have a crucial role in achieving the Sustainable Development Goals (SDG) and addressing climate change concerns. Not surprisingly, there is a growing interest in how FIs manage the environmental and social (E&S) risks emanating from their activities. While studying the ‘Innovative Climate Finance Mechanisms for Financial Institutions’, we conducted a survey to investigate the factors affecting FIs’ E&S performance in 11 countries in the Asia-Pacific region. This paper outlines the survey findings and provides insights into the factors affecting E&S performance of FIs. The paper identifies that awareness of E&S risks in the region is growing but from a low base and that E&S risks are increasingly integrated into risk management analysis and reporting frameworks. The paper demonstrates that although some FIs have made significant progress, considerable variation still exists among countries and institutions, and considerable work is still needed to improve E&S performance of FIs in the region. The paper highlights that although policy reforms and engagement can, over time, influence E&S performance of FIs, a lack of management support and institutional capacity remain significant constraints. The paper can assist policymakers in understanding the factors affecting E&S performance of FIs and in distilling the policy options needed to help them better integrate E&S risks into their operations