The unique role of the banking industry in supporting the transition to a more sustainable future is becoming ever more important, as the devastating impacts of climate change will only get worse if nothing is done today.
The battle against Covid-19 has been difficult. It has cost lives and stalled economies. However, global carbon dioxide emissions fell more than 6% last year to their lowest rate since 2006, based on research from the Global Carbon Project.
While emissions have since returned to pre-Covid levels, last year’s slowdown provided a glimpse of the scale of action required, said Eric Lim, chief sustainability officer at UOB.
Greenhouse gas (GHG) emissions have to fall by 7.6% per year globally for 10 years to limit global warming to 1.5 degrees above pre-industrial levels, according to projections by the United Nations Environment Programme. This underlines the need to take immediate actions.
As governments around the world grapple with challenges to achieve their targets under the Paris Agreement, most prominently reaching net-zero emissions by 2050, businesses and individuals are considering the most impactful way to hasten the transition from the bottom-up. Banks have an essential role to play here.
HELPING BUSINESSES ADVANCE RESPONSIBLY
As a financial intermediary, the banking sector has a responsibility to help bridge the top-down and bottom-up approaches for the betterment of the planet and its people.
Banks can provide capital to finance the investment in renewables, climate adaptation technologies and the transition to a circular economy, which is one that promotes the continual use of resources.
The transition opportunities are immense. Southeast Asia’s green economy could offer up to $1 trillion in annual opportunities by 2030, according to estimates by Bain and Company.
“By ensuring that finance is tied to sustainable outcomes, for example, we can help businesses advance responsibly. Banks are also well-positioned to channel economic flows towards the sustainable development of the region,” he said.
By being disciplined in the allocation of funding and in seeking returns, alongside a balanced scorecard that includes both profitability and sustainability indicators at the business level, banks can help to support customers and communities over the long term, ensuring sustainability, Lim said.
Last year, the Monetary Authority of Singapore (MAS) launched the world’s first Green and Sustainability-Linked Loan Grant Scheme to encourage banks to develop sustainability-related loan frameworks. Such initiatives have been met with a demonstrable shift in the priorities in the banking industry.
Loans linked to UOB’s sustainable finance frameworks are used for projects and activities that can help tackle the environmental challenges of large urban areas while generating broader positive impact. In 2020 alone, the total sustainable financing UOB extended to companies quadrupled that in 2019.
UOB’s U-Solar programme, for example, provides competitive financing to make renewable energy accessible to businesses and individuals. The successful uptake of the programme in Indonesia, Malaysia, Singapore and Thailand contributed in part to the doubling of our renewable energy portfolio three years ahead of target.
“Such solutions also highlight the responsibility of banks to be at the forefront of change. As we move towards a lower-carbon economy, it is incumbent upon the sustainable bank to adopt and to promote climate-resilient practices to support customers in this transition,” he said.
STEERING WEALTH TOWARDS SUSTAINABLE INVESTMENTS
As sustainability becomes more mainstream, investors are increasingly seeking products with an environmental, social and governance (ESG) focus. A sustainable bank not only plays the role of a major economic driver, but also enables its investors and stakeholders to invest in the sustainability of the wider economy by virtue of its sizeable market capitalisation.
According to Bloomberg, the world’s annual sustainable debt issuances, including green and sustainability bonds, more than doubled from about $310 billion in 2018 to more than $730 billion in 2020. Around 60% of the investors in UOB’s $1.5 billion sustainability bond offering – the first ever in Singapore – in April 2021 were sustainability-focused investors.
For individual investors in Singapore, we have in place a structured due diligence framework and have integrated ESG considerations into all of our investment products so that we can help consumers make a difference, no matter how small.
A range of ESG-focused products, such as UOB Asset Management’s United Sustainable Credit Income Fund, as well as private equity impact funds such as UOB Venture Management’s Asia Impact Investment Fund also meet the growing demand for sustainable investments.
CREATING BIGGER IMPACT
Southeast Asia remains one of the most vulnerable regions to climate change due to rising temperatures and sea levels, environmental degradation and other natural catastrophes.
Against this backdrop, banks must lead by example by ensuring that business and operational practices in Southeast Asia address environmental impact, Lim said.
Governments and regulators are also accelerating the execution of their sustainability roadmaps. For example, the MAS’ Guidelines on Environmental Risk Management outline measures to strengthen the resilience of the finance sector in light of the environmental risks.
The faster pace taken by authorities means the banking sector must step up and play our part in the transition to a more sustainable future. As stewards of capital, banks also have the fiduciary duty to drive sustainable development, while assuming active risk management of the potential environmental and social impact, Lim said.
“As one of the leading banks in the region, UOB is well-positioned to help forging a sustainable future at a time when Southeast Asian nations respond to the growing call for climate action. The responsibility is great, but the future demands it”, he said.