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.

These increasingly laxed mortgage lending standards by banks have in part worsened the household debt situation in Thailand, wrongly incentivized speculative activities, fueled real estate bubbles, and exposed banks to higher credit risks when there is correction in the real estate market. As a result, this prompted the Bank of Thailand to step up our macro-prudential regulations on mortgage lending. 3/7  Overall, these are just a few examples of how financial institutions’ own actions can contribute to the worsening of social and environmental problems, impair their credibility, and result in unintended financial losses. If there had been proper internal controls and incentives aligned, Wells Fargo’s customers would not have been subject to fraud. Had financial institutions assessed the potential environmental impacts of companies they were financing, credit decisions may have had a different outcome, limiting the extent of damage on surrounding environment and on public’s air quality in Singapore. With better credit culture and internal controls, Thai financial institutions could help limit the worsening of household debt and lower exposure to credit risks of their mortgage portfolios. While in some adverse incidents financial institutions managed to avoid large financial losses or were able to take swift actions to address them, it is clear that these incidents, if left unattended by financial institutions themselves or regulators, would have resulted in continued deterioration of public trust and in the long-term potentially large financial losses.