• Tue. Nov 29th, 2022

Net-zero continues to be the strongest driver for Singapore’s green future – lenders

ByElla E. Kidwell

Oct 24, 2022
Singapore is positioning itself as a green finance hub for Southeast Asia.
Source: tobiasjo / E+ via Getty Images

Singapore’s largest banks by assets are doubling down on sustainable finance deals, as they seek to back the government’s bid to become a green finance hub for the Southeast Asian region.

DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. ltd.or OCBC, and United Overseas Bank Ltd., or UOB, target between S$30 billion and S$50 billion each in sustainable finance loans as early as 2024, facilitating more transactions than they previously anticipated. It came as the government and businesses are accelerating their transition to renewable energy to prepare for a future with net zero carbon emissions. Singapore plans to reach net zero by 2050, in line with the goals of several major global economies.

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Mike Ng, Head of Sustainability Office, Oversea-Chinese Banking Corp Global Wholesale Banking.
Source: Oversea-Chinese Banking Corp.

“When Singapore makes a statement like that, it has every intention and every ambition to respond to it even though as a country, geographically, we are quite at a disadvantage because we don’t have much wind and we we don’t have a lot of land for solar,” said Mike Ng, head of sustainability office, global wholesale banking at OCBC.

National net-zero goals are naturally transmitted to businesses, government agencies, regulators and consumers, Ng said, as governments will pull certain levers to achieve their goal, such as using the carbon tax as penalties.

The Singapore Exchange Ltd. and the Monetary Authority of Singapore on September 12 launched ESGenome, a digital disclosure portal, to attract more environmental, social and governance investments. On August 4, the island nation priced the world’s longest sovereign green bond to fund sustainability projects, such as electric rail networks.

“The energy transition will be a major challenge [industry] it’s a major contributor in terms of reducing emissions,” Ng said, adding that power generation is a key industry that will require further investment. “The renewable energy ecosystem will continue to be a priority for us.

DBS, OCBC and UOB all exceeded their original sustainability lending targets, according to their sustainability reports. DBS Bank is currently the leading lender of sustainable loans, having issued S$52.7 billion since 2018. The bank has not announced a new target.

Banks report cumulative loans issued at the end of each fiscal year, and outstanding loans may be downsized and repriced over time.

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Yulanda Chung, Head of Sustainability, DBS Institutional Banking Group
Source: DBS Bank

Sustainable lending in Singapore largely comprises green loans and sustainability-linked loans, with an increasing proportion towards the latter. DBS Bank, for example, issued S$12.4 billion in sustainability-related loans and S$6.9 billion in green loans in 2021.

Green loans require all proceeds to be directed to environmental or climate-related projects, while sustainability-related loans allow a portion of the funds to be used for general corporate purposes, provided that the use of fund as a whole is linked to a company or a project. sustainability goals.

“We look beyond the entity we are funding; we look at the supply chain,” said Yulanda Chung, Head of Sustainability, DBS Institutional Banking Group. Chung added that supply chain finance takes into account factors such as environmental and social conditions in the framework.

“The trend goes beyond just club loans or loans on a sustainable basis,” Chung said.

Sustainable loans can also be classified according to the group to which the banks lend. The UOB pointed out that S$2 billion out of the S$21 billion in loans granted are given to small and medium enterprises.

The majority of UOB’s clients belong to the SME sector. “These are small businesses,” said Melissa Moi, UOB’s sustainable business manager.

“If we’re really trying to generate this massive flow of capital needed for this transition, we also need to find ways to help our SME clients access this type of financing in order to transition their businesses,” Moi said. .

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Melissa Moi, Head of Sustainable Business, United Overseas Bank
Source: United Overseas Bank

Challenges

The path to a green and clean environment is not straightforward, bankers said, noting factors such as sanctions on Russia that continue to choke off gas supplies and have forced countries to double gas production natural to prepare for the coming winter.

The three banks’ sustainability managers see this as a strong counter-argument to funding green projects this year, but believe the companies they lend to will continue to move towards clean energy in the long run, as it will benefit them at the end of the day. both climate change and the economy. perspective, especially when rules such as carbon taxes penalize emitters.

The three lenders have worked to create their own standards for assessing the ESG risks of the projects and clients to which they lend. In 2021, the UOB alone conducted over 8,000 ESG assessments, referring to the Singapore Banking Association’s ESG definitions and their responsible finance guidelines. The bank also considers factors such as reputational risk when performing ESG assessments.

“The risk of ESG issues is huge and the reputational risk is also quite significant, not to mention the physical transition risk stress tests that we conduct through all the climate risk conversations that we have,” said Me.

As of October 21, US$1 equaled S$1.42.