KUALA LUMPUR (June 25): The government and banking institutions can play a key role in advancing the transition of the country towards a green economy.

Speaking at the Maybank Kim Eng & Asean Exchanges — Beyond the Pandemicrisis virtual conference yesterday, Maybank Kim Eng group head of research for Singapore Thilan Wickramasinghe said financial institutions can play key role to enable the transition to sustainable financing by taking the portfolio approach, where they can extend financing to green opportunities and new green business lines — while withholding financing from areas that are not sustainable at the same time.

“I think it's also important to remember that banks do not only just lend money, they offer multiple other services and cash management and transactions where they can incorporate sustainability as well. So think of banks as a way, almost as a place, where you build sustainability capabilities at scale, which can then get pushed on to customers.

“There's a lot of brown industries in ASEAN. So, regional banks will have an outsized role to play and significant opportunities to help a lot of these businesses transition from brown to green,” said Thilan.

Maybank Kim Eng group head of regional equity research Anand Pathmakanthan concurred with Thilan’s view that banks have a big part to play in terms of advisory and providing the transition capital to make the transitions because they require huge amounts of capital.

That said, given that some industries in Malaysia have relied on oil and gas (O&G) for decades, Anand said the government needs to steer these industries to encourage them to move and speed up their transition.

“Anything the government can do to help that will be a carrot-and-stick approach. There could be incentives to wean them off dependence on fossil fuels, but there could also be a stick, like carbon taxes, maybe from a low base. I believe Singapore has already started carbon taxes and it should be started in Malaysia to get industries moving along faster on this transition curve, with banks assisting in that transition as well.

“So I think the message I'm giving to you here is we do have real problems in Malaysia, in terms of huge dependence on industries which are brown, which need to transition. But the answer is not one authority driving it. You need the government, banks and regulators to all come together and have clear targets for the industry, and then provide incentives to get them there,” Anand added.

Thilan also reckoned that there is a challenge in terms of balancing sustainable development and economic growth in the region.

“I think one of the biggest issues you have is putting in the right sustainability frameworks and taxonomies, and that is a significant challenge within the region.

“Also, banks and all businesses have to grapple in terms of how they make sustainability sustainable, [and] from a profitability point of view, how do you balance the different responsibilities you have to different stakeholders. I think particularly for ASEAN banks, the biggest challenge is to decide what to fund and what not to fund.

“A great example here is hydrocarbons, a feedstock that is required for a lot of power systems in Southeast Asia. So, if you pull out all too early, you might actually leave some economies with no reliable power systems because they can't afford to transition to something greener. So I think for a lot of banks, it's balancing how we meet our overarching dream and sustainable goals, but at the same time how we enable this transition to happen. I think that's also one of the key issues that a lot of banks and companies have to face,” he added.