Banks in Singapore have the most detailed and ambitious decarbonisation policies among advanced economies in Asia, according to a recent report by sustainability-focused consulting company Asia Research and Engagement (ARE).

The report by ARE assessed the climate goals of nine banks in Singapore, Japan and South Korea across their policy, governance and risk management actions.

According to the report, the three Singapore banks – DBS Bank, OCBC Bank and UOB – are the only ones in advanced Asia that have set targets, both medium- and long-term, on how they plan to reduce financed emissions for key carbon-intensive sectors that are aligned with a pathway that limits global warming to no more than 1.5 deg C.

They also have the most ambitious decarbonisation policies to reduce emissions in the oil and gas sector. OCBC and UOB have pledged to cease financing for the upstream portion of the value chain, while DBS has set a 2050 target to reduce the absolute financed emissions in the sector.

The report noted that they are the only banks in advanced Asia that have included facilitated emissions – which refer to off-balance-sheet emissions arising from capital market services and transactions – in their net-zero-by-2050 commitments.

“The Singapore banks’ plans represent the most comprehensive plans among Asian banks to align financing of carbon-intensive industries with global benchmarks such as the International Energy Agency’s net-zero emissions scenario,” read the ARE report released.

In contrast, while the Japanese and South Korean banks have sectoral targets, the report found them to be narrower in scope and less detailed. For example, the three Japanese banks assessed in the report – Mizuho, MUFG and Sumitomo Mitsui – have set only 2030 targets for key carbon-intensive sectors. These targets are also not based on a 1.5 deg C scenario.

As for the South Korean banks, the three assessed – Hana, KB and Shinhan – have not set targets for the oil and gas sector.

All six Japanese and South Korean banks have also not made any public commitment to stop the financing of new upstream oil and gas projects, though some have plans to restrict the financing of such activities.

Fossil fuel financing

However, while the Singapore banks may be leading the pack on several fronts, the report also noted that they have not committed to a deadline for ending the financing of the oil and gas sector altogether.

This includes both the upstream drilling and production of oil and gas, as well as the downstream refining, processing and distribution, or from gas-fired power generation assets.

This is also the case for the six Japanese and South Korean banks.

DBS’ targets for the oil and gas sector cover upstream, downstream and integrated companies, and it is targeting the reduction of absolute financed emissions by 92 per cent in 2050 from its 2020 levels.

OCBC’s targets for the sector – which are to cut absolute financed emissions by 95 per cent in 2050 from its 2021 levels – cover only upstream and integrated companies. The bank had previously stated that its commitments to cease financing for upstream oil and gas would eventually have spillover effects on downstream operations.

As for UOB, while it has opted to end financing for upstream oil and gas, it has not set a reduction target for the sector’s financed emissions. It had previously said that it was trying to phase out downstream oil and gas – which is where the most greenhouse gas is emitted – through financing restrictions on other sectors, such as power and automotive.

Including its policies to end thermal coal financing, DBS and OCBC have gone the furthest to phase out fossil fuel financing among all nine banks covered, the report said.

However, the report also noted that by targeting emissions instead of financing itself, the two banks have left open a window to keep financing fossil fuel activities from clients if greenhouse gas emissions from their activities are abated through technologies such as carbon capture and storage or direct air capture.

ARE recommends that all nine banks establish a policy on new upstream oil and gas projects, as well as a long-term policy on oil and gas financing covering the entire supply chain, from upstream to downstream.

As for thermal coal financing, all three Singapore banks have made commitments to cease financing for the sector.

While the report recognises that all nine banks have more ambitious policies to wind down thermal coal financing as compared with the oil and gas sector, it also recommended that they set policies that ensure a total withdrawal of corporate financing to coal companies and eliminate loopholes allowing financing in certain circumstances.

The report indicated that there are heightened expectations for banks to accelerate efforts to meet the goal of net-zero emissions by 2050, and in the region’s most advanced economies – Japan, Singapore and South Korea – banks are well placed to spearhead the region’s energy transition and profit from a long-term industry shift.

“Banks should decisively accelerate efforts to decarbonise finance to capture opportunity and avoid the risk that falling fossil fuel demand and regulatory shifts render fossil fuel-related assets obsolete,” read the report.

“They need to urgently accelerate efforts to achieve a low-carbon future. While they have taken promising steps, they will need to go much further to support a timely energy transition,” it added.