Ultimately, these incidents highlight that not properly taking sustainability risks into consideration could result in serious risks, both financial and non-financial risks, that are large enough to impact the viability of the financial institutions themselves. In other words, sustainability risks have been underpriced or underestimated in business practices of financial institutions. Ladies and gentlemen, Let me highlight on risks, especially credit risks, that financial institutions could face from different ESG dimensions. 4/7  On-going global warming can seriously impact future outputs, productivity, or the business continuity of borrowers, reducing their capabilities to generate income and repay debt. Persistent social issues like widening social gaps can fuel social distrust and trigger public unrest and demonstrations, resulting in economic losses. Malpractices by borrowers that have negative implications on environment and society may result in potential business failures, especially in today’s society where information can be quickly disseminated through online and social media channels. Meanwhile, poor governance by financial institutions themselves can result in misallocation of funds and concentration of risks. All of these are examples of how different ESG dimensions can heighten credit risks for financial institutions. Moreover, financial institutions may be subject to credit and reputational risks coming from their corporate clients if their clients fail to adapt business models to meet heightened standards and changing environment. Fast changes in consumer preference for sustainable products and increasing public demand for corporates to demonstrate social responsibility can negatively impact businesses should their business practices fail to meet public expectations.

•  In a relatively better position to weather the shift are Malaysia and the Philippines, as they export a variety of agricultural produce and consumer goods to China. 4  BIS central bankers’ speeches  However, it would be misleading to attribute Asia’s weak export performance solely to China’s slowdown. •  While Emerging Asia’s nominal exports to China fell by 4% y-o-y last year, the decline in the region’s exports to advanced economies and other emerging markets has been even sharper. •  An MAS study shows that the ASEAN-4 economies’ value-added exposure to G3 final demand is still about 1.4 times its exposure to China’s final demand. Third, the inevitable transition pains of a restructuring China will trigger periodic bouts of volatility in financial markets across Asia. •  Shocks from China’s financial markets are transmitted through the banking and portfolio channels due to the substantial holdings of Chinese assets by foreign investors and lenders. •  Another avenue of transmission would be through the confidence channel, whereby events in China affect risk appetites in other markets. China in transition: medium-term implications In the medium term, China’s rebalancing could bring more positives to Asia in spurring trade, boosting investment, and expanding regional production networks. First, there are ample opportunities for countries which re-orientate the structure of their exports to tap on Chinese’s burgeoning demand for consumer goods and services.