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.

It is therefore important that financial institutions understand changing clients’ business practices and public expectations to be able to fully assess their exposure to risks. It is also to be noted that as intermediary of public money, financial institutions have the important role of meeting public expectations to maintain the credibility and trust of the financial system. 5/7  Ladies and gentlemen, I would like to reiterate that financial institutions cannot underestimate the risks that come from various aspects of ESG, as these risks can impair the long-run sustainability of the financial institutions themselves. To manage and reduce these risks, it is important that financial institutions internalize sustainability considerations and properly price in potential risks into different aspects of their operations. This starts with commitment by directors, top management, and senior executives to create a culture that embraces sustainability. This could be achieved through the setting of long-term and strategic priorities to address sustainability issues; establishing new layer of internal control to limit negative externalities of related activities; and expanding the scope of risk assessment and internal audit to account for potential risks from ESG-related issues. For Thailand, it is encouraging to see many financial institutions beginning to incorporate sustainability practices and internalize ESG risks. Some financial institutions have explored different ways to assess and limit ESG impacts; some have improved disclosure practices; and some have adopted global sustainability standards. A few of our financial institutions have also been included in the Dow Jones Sustainability Indices.