While 52 percent of financial institutions in the Asia Pacific region have pledged net-zero emissions, only 17 percent meet the Science Based Targets initiative standards, according to PwC.

In its recent report, Sustainability Counts III – Financial Services Deep Dive, the global consultancy firm found that the lack of a standardized validation raised concerns about the credibility of these targets.

The study, which examined sustainability disclosures from 129 listed financial firms across 14 APAC jurisdictions, including India, found that the slow adoption of SBTi guidelines reflects the rigorous demands of these standards and uncertainty surrounding emerging protocols.

Further research revealed that only a few firms using the SBTi’s Corporate Net Zero standards have extended their targets to their financed emissions or the emissions generated by the activities they finance.

“The low levels of SBTi alignment and lower levels still of target validation can likely be attributed in part to the demanding nature of the SBTi requirements themselves,” stated the report.

Scenario Analysis: A Missing Link

The study further found that scenario analysis, a critical tool for assessing climate risks, is underutilized, with only 23 percent of institutions engaging in qualitative and quantitative approaches.

Scenario analysis involves modeling various plausible futures, such as rising global temperatures or policy changes, to understand how these scenarios could affect the value of investments, assets, and operations.

However, the report said that this number could rise in the near term, considering increasing expectations from regulators on financial institutions regarding the use of scenario analysis.

“Climate scenario analysis should not be seen as ‘just a paper exercise’ but as a means to fully interrogate the resilience of the financial institution,” the report stated.

Regulatory pressures may drive adoption in the coming years as countries like Hong Kong, New Zealand, and Japan emphasize scenario analysis in their financial regulations.

Biodiversity and Nature: The Next Frontier

Nearly 50 percent of financial institutions include biodiversity in their sustainability reporting, yet engagement with new frameworks, such as the Taskforce on Nature-related Financial Disclosures, remains limited.

“This is perhaps to be expected, given the TNFD only released its final recommendations in September 2023. Since then, however, there have been further developments that may help catalyze engagement among financial institutions with the nature and biodiversity imperative,” the report stated.

At the 2024 United Nations Biodiversity Conference this year in Colombia, new papers from the TNFD and the Glasgow Financial Alliance for Net Zero reflected the view that nature and biodiversity elements are not sufficiently accounted for by firms using existing transition planning guidelines.

Assurance and Accountability

Nearly 65 percent of financial institutions sought external assurance for their sustainability reports, while the rest sought internal guarantees, signaling an increasing commitment to transparency.

Among those financial institutions that have sought external assurance, 93 percent have opted for limited assurance, while 16 percent have done a reasonable/high external assurance.

Most firms opted for limited assurance, with standards such as the International Standard on Assurance Engagements 3000, a framework for assurance engagements.

As regulatory pressures intensify and the importance of transparency in sustainability practices becomes ever more apparent, financial institutions must embrace these challenges as obligations and opportunities to lead in the transition to a more resilient and sustainable future.

“Forward-thinking institutions that embrace rigorous ESG practices today will be better equipped to navigate the complexities of tomorrow,” the report summed up.

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