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SOUTH-EAST Asia’s largest lender DBS has adjusted its policy to accommodate the financing of the early shutdown of coal-fired power plants, and is already working on a deal, said its chief sustainability officer Helge Muenkel.
He said on Tuesday (Mar 5) that the decision to tweak its internal policy came about over the last few months to align with shifts in the wider financial sector, which has been pushing to ramp up transition finance in the coal space.
Transition finance refers to capital that will faciliate the decarbonisation of carbon-intensive companies.
The release of two Asia-based taxonomies that accommodated early coal phase-out as among one of the eligible activities that qualify for sustainable financing reflects the industry’s softening approach towards coal, though with parameters and conditions attached.
DBS also worked with the Asia-Pacific chapter of the Glasgow Financial Alliance for Net Zero (GFanz) – a global coalition of financial institutions – on a set of voluntary guidelines on how early coal retirement can be funded in a credible manner.
This has provided banks with more confidence to participate in early coal retirement, an activity that would have otherwise garnered heavy criticism amid growing international pressure on banks to cut financing for fossil fuels to curb global warming.
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“We wanted to do this properly,” said Muenkel. And when one works with GFanz, there is an outreach to government regulators such as the MAS, he added.
“Because we can’t do this alone, this is why we did (it) step-by-step to be aligned with the ecosystem,” said Muenkel.
DBS’ prior coal financing restrictions will remain. The bank will still not finance any new thermal coal-mining projects and its plans to gradually reduce thermal coal exposure is still in place.
When asked how the bank would be reporting financed emissions arising from early coal retirement, Muenkel said there is currently no industry consensus on this yet, though he would not mind separating future exposure to early coal retirement from its existing thermal coal financing as both are “very different types of exposure”.
But whatever the industry decides on, he said that the bank will be transparent about any early coal retirement deals it finances.
This means that DBS’ financed emissions in the power sector may go even higher over the next few years with this change in policy.
The bank’s financed emissions for the power sector has gone up in 2023 compared to 2022, according to its latest sustainability report released on Wednesday (Mar 6). But DBS said that it is still on track to meet its decarbonisation goals in the power sector, as the increase is a result of expanding the scope of its power-sector clients to include critical power and utility players that contribute to energy security in Asia-Pacific.
Its exposure to thermal coal has also declined to S$1.8 billion in 2023, compared to S$2.2 billion in the previous year, while its renewable energy financing has increased to S$10 billion from S$7 billion over the same period. Muenkel noted that renewable energy financing is about half of its power portfolio.
The bank’s absolute financed emissions for the oil and gas sector has gone down to 26.2 tonnes of carbon dioxide equivalent in 2023, compared to 28.9 tonnes from the year before. Its outstanding exposure to the entire in-scope oil and gas portfolio has decreased by about 10 per cent, putting the bank on track to achieve its target of a 28 per cent cut by the end of the decade.
DBS also said that it is also on track to meet the decarbonisation goals of its real estate, automotive and aviation sectors. Similar to the previous net-zero update provided in March 2023, steel and shipping continue to be the sectors that have not been able to decarbonise at pace with the industry’s net-zero reference pathways.
For the shipping sector, the weighted emissions intensity of its shipping portfolio was 15.6 per cent above the recommended target in 2023, higher than 5.4 per cent the previous year, which reflects a widening from its reduction trajectory.
The bank added this was primarily due to additional drawdowns on facilities used to finance shuttle tankers, which were facilities already committed before the bank set its sectoral decarbonisation targets in September 2022.
As for steel, the emissions intensity improved to 1.95, compared to 1.99 in the previous year. Despite the improvement, it is still above the reference target of 1.83 from the Mission Possible Partnership’s Tech Moratorium scenario. DBS’ target is to lower this to 1.42 by 2030.
“The actual pace of decarbonisation in the steel sector is slower than anticipated and we will need to strike a balance between honouring our existing commitments to clients and approaching our net zero goal,” read the report.
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