Being in a region that is among the most vulnerable to climate change, Singaporean banks are ramping up efforts to incorporate environmental, social and governance (ESG) principles into their lending and investment decisions.
Over the last couple of years, the city-state’s leading lenders DBS, OCBC and UOB have committed themselves to achieving the net-zero target by 2050, and have made comprehensive pledges to curb lending to industries that are not ESG-compliant such as coal, steel, shipping, and oil and gas sectors.
Their full-year 2022 results show how far they have gone green, and in becoming more socially conscious and sustainable institutions, with the deep understanding that decarbonization is a once-in-a-lifetime business opportunity.
DBS: Exceeding sustainable financing target
In April 2019, Singapore’s largest bank DBS turned off the funding tap for new thermal coal assets. Since then, it has continued to progressively phase down its thermal coal exposure while bolstering support for the renewables sector.
DBS was also the first Singapore bank to join the UN-convened Net-Zero Banking Alliance in October 2021. By joining the group, the bank also committed its corporate clients, investors, and other stakeholders to the goal and translate their climate ambitions into tangible action. As of the end of 2021, 100% of DBS' new suppliers had signed their commitment to its sustainability sourcing principles.
That undertaking was further intensified in September 2022, when the bank announced one of the most comprehensive sets of decarbonization targets in the banking industry, which it will discuss more thoroughly in its upcoming annual sustainability report.
Industries that are now covered by the DBS decarbonization strategy and data coverage targets include power, oil and gas, automotive, aviation, shipping, steel, and real estate – with data coverage targets also set for the food, agribusiness and chemicals sectors.
These represent the most carbon-intensive institutional banking segments financed by DBS, accounting for 31% of its outstanding loans but constituting the vast majority of the institutional banking unit’s financed emissions.
As is the case with its local banking contemporaries, DBS is committed to achieving net-zero operational carbon emissions across the bank, reducing its carbon footprint while advancing its sustainable procurement agenda.
During last month’s full-year results briefing, the bank reported its sustainable financing portfolio had swelled to S$61 billion (US$45.3 billion), far exceeding its own target of S$50 billion by 2024.
When asked about its total assets under management in ESG-focused investments, the bank did not offer an estimate, but said: “For the wealth segment, we recorded AUM of more than 60% of sustainable investments.”
OCBC: Measurable and broad-based progress
Underlining its commitment to achieving net zero, OCBC in April 2019 became the first Southeast Asian bank to stop financing new coal-fired plants. Under the leadership of then-chief executive officer Samuel Tsien, the lender said that two Vietnamese coal-fired power plants would be the last it financed as it turned its focus towards increasing funding for renewable projects.
The second-largest homegrown lender was also the first to announce a target for its sustainable finance portfolio in 2019, namely to achieve S$10 billion by 2022, which it comfortably exceeded.
Further ramping up its commitment to sustainability, OCBC joined the Net-Zero Banking Alliance in October 2022 which it said was part of its pledge to transition to a low-carbon environment.
“Joining the alliance reflects our commitment as a group to achieving net zero not just in our operations but also in our lending and investments businesses,” stresses Helen Wong, group CEO of OCBC Bank. “We want to help bring about progress that is measurable and broad-based; it should gain momentum over time and be irreversible.”
As a signatory of the alliance, OCBC Bank committed to a number of climate-related covenants, including transitioning the operational and attributable greenhouse gas emissions from its lending and investment portfolios to align with pathways to net-zero by 2050 or sooner.
While the bulk of that commitment is aimed at its institutional clients, OCBC also rolled out greener offerings to its retail consumer customers. The bank has launched OCBC Eco-Care Loans, including home, renovation and car loans, which incentivize individuals to own electric vehicles and build more environmentally sustainable homes.
At the bank’s recent full-year results briefing on February 24, Wong said OCBC's sustainable financing commitments now exceeded S$44 billion and is on track to meet the bank’s target of S$50 billion by 2025 or earlier.
On OCBC's total assets under management in environmental, social and governance-focused investments, the bank said it does not typically share that information.
On the consumer front, the Bank has launched OCBC Eco-Care Loans, including home, renovation and car loans, which incentivize individuals to own electric vehicles and to build more environmentally sustainable homes.
UOB: An orderly and just transition
In October last year, UOB, the third largest of local Singaporean banks, announced its own commitment to reach net zero by 2050, with a focus on decarbonization in Southeast Asia as well as its home territory.
UOB’s net-zero commitments cover six sectors, which make up about 60% of its corporate lending portfolio. The sectors are power, automotive, and oil and gas, which are part of the energy value chain, as well as the real estate, construction and steel segments.
The bank said it based its sectoral targets on regional pathways that align with global net-zero goals, reflecting its belief in the need for a just transition in Southeast Asia that continues to support economic growth and improve energy access across the region’s diverse economies.
In response to the Singapore government sustainability drive, the bank’s asset management subsidiary UOB Asset Management in October 2021 launched the United Smart Sustainable Singapore Bond Fund, the first Singapore-focused fund aimed at helping individual and institutional investors contribute to the nation’s sustainability drive.
The fund invests in high-quality green, social, sustainability and sustainability-linked bonds with strong ESG mandates. With most of the assets allocated to bonds in Singapore, the aim is to support the country’s green development plans.
The group’s sustainable financing portfolio reached S$25 billion as of December 2022, well on track to achieve its target of S$30 billion by 2025, while its total AUM in ESG-focused investments also grew to S$10 billion during the year, says UOB’s deputy chairman and CEO Wee Ee Cheong.
Aware of the need for emerging markets to lean longer on fossil fuels to stimulate economic growth, Wee acknowledges that in Southeast Asia net-zero ambitions must go hand in hand with an orderly and just transition to take into account socio-economic challenges.
The bank has committed to exiting financing for the thermal coal sector by 2039. This is on top of its existing prohibitions on new project financing for greenfield or expansion of coal-fired power plants and thermal coal mines.
“Even as we cut our carbon footprint, we must ensure that people’s lives and livelihoods can continue to improve. It is important to balance growth with responsibility on our net-zero journey,” Wee stresses.