The global climate crisis is accelerating, and countries in Asia-Pacific face severe impacts. Asia and the Pacific remained the region most impacted by natural disasters in 2023, according to the State of the Climate in Asia 2023 report published by the World Meteorological Organization. Floods and storms cost lives and imposed economic damages and the region faced a rising number of increasingly severe heatwaves. 

Scientists are increasingly making the connection between extreme weather events and climate change. As the damage from extreme weather events becomes more apparent, the urgency increases for companies to understand, measure and manage the risks they face from climate change and the interlinked crisis of biodiversity loss.

For financial institutions like banks, the stakes are especially high. Their exposure to the wider economy through lending, investing or underwriting across industries means that they could be more exposed to the economic impacts of climate change; they also can play a key role in financing the transition and facilitating the flow of the trillions of dollars in capital needed for the world to mitigate and adapt to climate change.

Data can help financial institutions make informed decisions about how to develop effective sustainability strategies to reduce their climate and environmental risks. In a new report from S&P Global Sustainable1 and Bank of China (Hong Kong), we use data from the S&P Global Corporate Sustainability Assessment and Nature & Biodiversity Risk Dataset to understand the physical risks of climate change and how these will impact financial institutions in the Asia-Pacific region in the decades to come. The report also describes the growing risks posed by biodiversity loss and the dependencies that companies have on the ecosystem services that nature provides. Finally, we survey how companies across the Asia-Pacific region are approaching sustainability in their businesses to better understand the current landscape, and thus better understand where to focus next.

Read the full research report from S&P Global Sustainable1 and Bank of China (Hong Kong) here.

Asia-Pacific is not homogenous, and neither are the effects of climate change on the region. It is important to note that there is great diversity within Asian economies. South Asia is the most economically exposed region, facing three times more potential economic losses annually (about 12% of GDP) than the world average by 2050 under a slow transition scenario (SSP3-7.0), according to research from S&P Global Ratings. This is more pronounced than the GDP at risk in East Asia and Pacific or Central Asia. There is no one-size-fits-all approach that will work for financial institutions in the region, but we hope that the data presented in this report will provide a useful overview of the challenges and opportunities facing different markets.

Key findings of the research: 

• About 13% of assessed financial institutions in Asia-Pacific have net-zero targets for financed emissions. This suggests there is room for additional target-setting that covers these companies’ entire value chain. Financial institutions have relatively low Scope 1 direct emissions and Scope 2 indirect emissions, but they have much higher Scope 3 indirect emissions, which include the greenhouse gases (GHGs) emitted by businesses or projects they finance, invest in or underwrite.

• Among Asia-Pacific financial institutions, about 23% selected climate strategy as one of their three main material issues out of a total of 14 material topics; climate strategy ranks as a top material issue along with risk and crisis management.

• Adaptation planning can help financial institutions prepare for the effects of extreme weather events on their business and the broader economy. About 19% of Asia-Pacific financial institutions have an adaptation plan, suggesting there is room for additional investment of time and resources into adaptation efforts in the region.

• Scenario analysis is another tool that can help financial institutions understand how their business will perform under different future climate change scenarios. Among the financial institutions in our study, 35% conduct some form of physical risk scenario analysis.

• A similar picture emerges when analyzing climate transition risk scenario analysis, which takes a forward-looking approach to how future policy, regulatory and technological changes as well as legal, market and reputational risks could impact a business. Nearly 35% of Asia-Pacific financial institutions in our study conduct transition risk scenario analysis.

• Investors and the financial community increasingly understand that climate and biodiversity risks need to be addressed in tandem. At present, roughly 6% of Asia-Pacific companies in our analysis have made biodiversity commitments. This figure is higher in some markets, such as India, where about 17% of companies assessed have made biodiversity-related commitments, reflecting the fact that the country has already implemented legislation to protect nature.

This piece was published by S&P Global Sustainable1 and not by S&P Global Ratings, which is a separately managed division of S&P Global.