DBS, OCBC, and UOB have set S$200b loan portfolio emissions targets.

Singapore’s major banks, DBS, OCBC, and UOB, have set sector-specific emissions reduction and net-zero targets for their indirect financial activities, known as Scope 3 financed (lending and investments) and facilitated (underwriting) emissions.

These targets focus on ten carbon-intensive sectors and cover over S$200b in loan portfolios, representing the majority of their total financed emissions, according to Smartkarma’s recent ESG Insight.

The banks aim for intermediate reductions of 40% by 2030 and long-term reductions of 96% by 2040 or 2050, with net-zero targets for three sectors and nearly net-zero for most others. These targets are supported by science-based decarbonisation pathways specific to each sector.

Setting Scope 3 financed and facilitated emissions targets is both good corporate citizenship and sound business practice. Financed emissions typically account for over 95% of a bank’s total greenhouse gas emissions, and addressing them is crucial for managing climate-related risks and opportunities.

The key benefits include:

Climate Risk Management: Financed emissions pose significant climate risks, particularly transition-related credit and market risks such as loan defaults and asset devaluations. Setting these targets provides valuable data for climate risk management and stress testing.

Sectoral Decarbonisation: Sector-specific financed emissions targets help embed climate action across banking activities. While this may involve divestment from high-carbon sectors like thermal coal, the focus is on financing clients’ decarbonisation and low-carbon transition goals.

Commercial Opportunities: Facilitating clients’ transitions helps banks identify new climate-related opportunities, particularly in developing innovative transition finance products.

Regulatory Relationships: With financial systems increasingly focused on climate-related systemic risks, banks can assist regulators by setting financed emissions targets, gaining a head-start on mandatory Scope 3 emissions reporting.

Stakeholder Sentiment: Setting these targets enhances transparency and accountability regarding banks’ emissions, which is increasingly valued by clients and shareholders who are concerned about the climate impacts of their banks and investments.