The Business Times: Singapore banks clear up on coal lending policies

By Jamie Lee

Heightened disclosures come as local lenders increasingly scrutinised by NGOs

As scrutiny increases over their energy lending, the three Singapore banks have raised disclosures on their policies over coal-fired power plants, with all putting on record for the first time that they will stop the financing of new coal-fired power plants that do not run efficiently.

These inefficient plants are ranked as subcritical. Such projects typically have a carbon emissions intensity of more than 850 gram of carbon emissions for each kilowatt hour (850g CO2/kWh) of electricity generated.

The Business Times (BT) understands that OCBC at the start of July updated its website to reflect its climate change statement. On its website now, OCBC said it will prohibit any new corporate financing or project financing for coal-fired power plants that use subcritical efficiency technology, and brown coal as the main fuel source. Brown coal is considered the lowest grade of coal and generates much higher carbon emissions on a megawatt basis when burned, as compared to other forms of coal.

OCBC added that it conducts environmental, social and governance (ESG) risk assessment on borrowers at least once a year throughout the financing tenor, with more assessments conducted when "significant ESG events" arise. It did not specify what such events would entail.

"We may impose covenants in our credit facilities that require the borrowers to comply with ESG requirements. If the covenants are breached or our ESG expectations are not met, we will reassess the client relationships, including turning down transactions," OCBC said.

BT's separate checks with OCBC's latest annual report showed that last year, all transactions with a "high ESG risk" that had been flagged to the reputational risk review committee were rejected. OCBC added that it does not have a significant concentration in sectors with high ESG risks.

In a media statement to BT, UOB's head of group finance and chairperson of the ESG committee Eric Lim said that UOB prohibits the financing of new subcritical coal-fired power plant projects.

UOB is also the only bank of the trio that has specified it would not support coal-fired plants that emit more than 830g CO2/kWh, checks by BT showed.

"We will only support those plants with a maximum carbon intensity of 830g CO2/kWh. This is in line with what the industry considers an efficient, supercritical coal-fired facility," said Mr Lim.

Supercritical coal-fired plants have a typical emissions intensity of 750g-850g CO2/kWh, while ultra-supercritical coal plants have a typical emissions intensity of under 750g CO2/kWh.

Mr Lim added: "As we reduce the proportion of coal-fired project financing in our energy portfolio, we continue to ensure those projects comply with our stringent technological requirements and emission standards. To help reduce greenhouse gas emissions further, we also encourage the use of appropriate technology such as carbon capture and storage facilities."

In UOB's latest annual report, the bank said it has not had a significant concentration in any of the eight ESG-sensitive sectors that include mining, energy and agriculture. All in, UOB's exposure stands at about 10 per cent of the total loan portfolio.

DBS earlier this year said it would direct its financing to more efficient technologies in developing markets, and stop project financing of greenfield thermal coal mines. It also said it will only provide corporate financing to customers in the coal sector with an energy diversification strategy.

"Legacy issues may arise from business entered into before the implementation of this policy. We will honour existing commitments, but there will be no expansion of these engagements," it added.

The heightened disclosures come as Singapore banks have been more scrutinised by non-governmental organisations (NGOs). This month, a group of 16 Singapore NGOs sent an open letter to the three banks, calling on the financial institutions here to "step forward as regional and global leaders of sustainable development".

"Burning coal releases airborne pollutants such as mercury, lead and fine particles that significantly harm the health of local communities," said the open letter seen by BT.

An Australian NGO, Market Forces, has also sent media statements calling for more clarity on how these coal lending policies would lead to any tangible change to the Singapore banks' future lending. "The purpose of policy is to set direction for the future, not reflect the status quo," said its executive director Julien Vincent.

Banks here have stressed that Asean still requires the use of coal to meet increasing energy demands in this region, even as there is a move to adopt low-carbon energy. The International Energy Agency has said that coal will by 2040 still account for 40 per cent of the energy mix. In Asean, some 65 million people still have no access to electricity. The lenders added that they would look to finance more renewable energy projects here.

At the annual dinner of the Association of Banks in Singapore (ABS) in June this year, ABS chairman Piyush Gupta pointed to the need to manage the pace of energy transition.

"The bare facts are before us: climate change is one of the biggest challenges facing mankind. As an industry, we must be committed to taking a leadership role in promoting sustainable development, including sustainable production and a transition to a low-carbon economy," said Mr Gupta, who is also CEO of DBS.

"At the same time, it would be foolhardy to assume that the transition can happen overnight."

The latest disclosures put the three Singapore banks closer in line with international lenders, though some of their global peers have gone further by specifying the maximum carbon intensity that they would tolerate from coal-fired power plants built in developing countries.

For example, Standard Chartered has put a limit at 830g CO2/kWh and HSBC at 810g CO2/kWh for projects in developing countries. ING has said it intends to substantially exit the financing of thermal coal power and mining by 2025, while BNP Paribas has said it will not finance any new coal-fired power plant globally.

Singapore banks have said they follow standards such as the Global Goals for Sustainable Development held by United Nations member states, as well as lending standards dictated by the Equator Principles - a set of international guidelines for banks to deal with environmental and social risk in projects that are followed by global banks.

Still, the local lenders are for now not official signatories of the Equator Principles. Globally, there are about 90 such financial institutions that have signed on.

As stated in Parliament in February this year, all three local banks are expected to review their clients' sustainability profiles and work with them to improve their sustainability practices. They must also complete the review of their entire customer portfolios by year-end.

Copyright Singapore Press Holdings Limited. All rights reserved.

Last updated 26 Jul 2018


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