A retail rush into the environmental, social and governance (ESG) investing theme in 2021 made way this year for the increased scrutiny of corporations’ claims and balance sheets.
Promises of higher returns in sustainable investing were upended by the Russian-Ukraine war and rising US Fed rates, which made conventional “dirty” fuel much more lucrative on the one hand, and renewable energy much more expensive on the other.
With or without handsome returns, the threat of climate change still stays. How have the largest local names on the Singapore Exchange (SGX) contributed to the global decarbonisation effort?
Local banks
After appointing chief sustainability officers (CSOs) in previous years, the three local banks have since published roadmaps towards decarbonisation.
The lenders’ commitments to net zero cannot be understated. Together, they account for nearly half the weightage of the Straits Times Index, with DBS Group Holdings at 20.2% (as at Dec 5), Oversea-Chinese Banking Corporation (OCBC) at 11.6% and United Overseas Bank (UOB) at 11.7%.
See also: ho should drive sustainability within the company?
DBS took the first stab at target-setting with the release of its roadmap in September. “As Southeast Asia’s largest bank by assets, we recognise the responsibility we have — to support a fair and just transition to the benefit of people across the region in which we operate,” reads its pathway document.
The bank aims to reach net-zero emissions by 2050, with its first “interim checkpoint” in 2030.
DBS’s plan covers nine sectors, of which seven of them — power, oil and gas, automotive, aviation, shipping, steel and real estate — have emissions reduction or alignment delta targets of between 71% and 100% by 2050, against a 2020 baseline.
The alignment delta measures how DBS’s clients compare to a range of diverse underlying benchmarks. “While this approach is well established in the shipping sector, it is novel in real estate,” says DBS.
The most immediate and dramatic target could see DBS nearly halve (47%) its Scope 1 and 3 emissions, which involve generation and equipment manufacturing, respectively, from the power sector by 2030.
For oil and gas, DBS aims to slash absolute emissions by 92% by 2050, from a baseline of 38.6 million tonnes of carbon dioxide equivalent (MtCO2e) in 2020.
Meanwhile, DBS believes it is “premature” to set emissions reduction targets on the chemicals and food and agribusiness sectors, citing a lack of data. The bank aims to increase data coverage by 2030, where 66% of its large corporate clients will report their emissions and physical output.
OCBC announced on Oct 25 that it had joined the Net-Zero Banking Alliance (NZBA), a UN-supported private sector collaboration among more than 120 banks with US$70 trillion ($96.7 trillion) in global banking assets.
OCBC is developing a systematic plan to achieve net zero by 2050 and aims to unveil its sectoral financed emission targets by the first half of 2023.
The NZBA was launched by the United Nations Environment Programme Finance Initiative (UNEPFI) in April 2021. DBS joined the Alliance in October 2021.
See also: OCBC joins Net-Zero Banking Alliance, aims to unveil sectoral decarbonisation targets by 1H2023
As a signatory, OCBC commits to transitioning the operational and attributable greenhouse gas (GHG) emissions from its lending and investment portfolios to align with net-zero pathways by 2050 or sooner.
Within 18 months of joining the NZBA, OCBC must set 2030 targets, or sooner, along with a 2050 target. The bank must also set intermediary targets every five years from 2030.
OCBC will also publish annual reports detailing absolute emissions and emissions intensity. Within a year of setting targets, the bank must disclose its progress in establishing a board-level transition strategy by sector.
A week before the start of COP27, UOB announced sectoral plans to reach net zero by 2050. It also joined the NZBA, becoming the last local bank to do so. UOB’s commitments cover six sectors, which make up about 60% of its corporate lending portfolio.
These six sectors are power, automotive, oil and gas, real estate, construction and steel. UOB commits to no new project financing for upstream oil and gas projects approved for development after 2022.
By 2050, UOB will reduce emissions intensity for the remaining five sectors by between 85% and 100%, against a 2021 baseline.
UOB’s commitments include interim 2030 targets. By the end of this decade, UOB says it will reduce emissions intensity by between 20% and 61% for the five sectors.
As of Sept 30, outstanding loans to the oil and gas industries make up 4% of UOB’s total loans. Of this figure, some $2.4 billion in outstanding loans are to upstream industries, while $9.3 billion in outstanding loans are to traders or downstream industries.
“Outstanding exposure is to downstream players and traders which are mainly national oil companies (NOCs) and global firms, while short-term structured loans account for a significant share of the remainder,” reads UOB’s 3QFY2022 update. “A considerable portion of upstream exposure is to NOCs and international oil companies, while vulnerable accounts were already classified and their collateral value marked down (by as much as 90%) by end-2017.”
UOB says it will conduct annual reporting to track progress against its net-zero commitments. Over time, the bank will expand the scope of its targets to include additional sectors “as data and climate scenarios become available”.
CapitaLand
Itself a listed company, CapitaLand Investment’s (CLI) listed funds business comprises five REITs and business trusts listed on the SGX and one on Bursa Malaysia, with a total market capitalisation of $30.6 billion as at Sept 30.
Along with CapitaLand Integrated Commercial Trust (CICT) and CapitaLand Ascendas REIT (CLAR), CLI sits among the top 10 companies primarily listed on the SGX by market capitalisation.
In May, CLI committed to achieve net-zero emissions by 2050 and reduce its absolute Scope 1 and 2 emissions by 46%, up from 28%, by 2030 from a 2019 base year. This furthers CapitaLand’s 2030 Sustainability Master Plan, launched in October 2020.
“Why did we choose 2019? It’s recent and we didn’t want it to be muddled by Covid-19 data. Even today, our data is not reflective of the 2019 business-as-usual,” says Vinamra Srivastava, chief sustainability officer at CapitaLand, at a Nov 28 briefing.
With assets from the office, retail, lodging, business parks, industrial and data centres sectors across various markets, the breadth of CapitaLand’s portfolio gives it a unique vantage point.
Taken as a whole, however, could exceptional progress in one area mask slower reductions in another?
“[Our] target is to reduce the amount of carbon in the atmosphere; that’s our ultimate target at the end of the day. Where the carbon is coming from is not important,” says Srivastava in response to The Edge Singapore.
On its own, each asset class may not be able to reach net zero, he adds. “What a diverse portfolio allows us to do is cater for technological challenges. We will still have a gap because not all our assets will be 100% in every geography. Then, the balance is where we’ll need to look at renewable energy certificates and even high-quality nature-based offsets.”
Keppel and Sembcorp
Keppel Corp announced in October 2021 its commitment to halve the company’s Scope 1 and 2 emissions by 2030 against 2020 levels, and achieve net zero by 2050.
In 2021, Keppel reported an 8.6% reduction in absolute Scope 1 and Scope 2 emissions compared to its 2020 baseline.
Its Vision 2030 roadmap highlights an “asset-light model”. In line with this, Keppel is simplifying its business and focusing on sustainable urbanisation solutions, says CEO Loh Chin Hua in the group’s 2021 sustainability report, released in May.
In April, Keppel signed definitive agreements on the proposed combination of Keppel Offshore & Marine (Keppel O&M) and Sembcorp Marine (SembMarine), as well as the resolution of Keppel O&M’s legacy rigs.
In October, Keppel and SembMarine announced revised terms, with SembMarine now directly acquiring 100% of Keppel O&M. From the earlier 44:56 equity value exchange ratio between SembMarine and Keppel O&M, SembMarine shareholders will instead own 46% of the enlarged SembMarine, and Keppel and its shareholders will own 54%.
SembMarine’s shareholders must now approve the transaction, with at least 50% to be present and voting by proxy, down from 75% previously.
On renewable energy, however, Keppel has been beefing up its portfolio. It aims to grow its renewable energy assets to 7 gigawatts (GW) by 2030, up from 1.1GW at end-2021.
Sembcorp Industries, meanwhile, is aiming for 10GW of gross installed renewables capacity by 2025, up from 2.6GW at end-2020.
In April, Keppel Corp, Keppel Asia Infrastructure Fund and a co-investor of the fund announced they are acquiring 50% of Cleantech Solar Asia from CEF 200 BV, a fund managed by Climate Fund Managers, for US$115 million.
Keppel Infrastructure signed an MOU with India’s leading energy transition company Greenko in October to jointly explore opportunities in green ammonia and renewable energies.
Keppel Infrastructure announced in November a similar joint study agreement on green hydrogen with Pertamina Power Indonesia.
“To accelerate our growth in renewables, we will not only pursue greenfield developments, but will also explore opportunities to acquire stakes in established renewable energy platforms, together with co-investors,” says Loh.
Ridding a balance sheet of “dirty” assets, however, only transfers it to another entity; the net impact on the environment remains unchanged.
Corporations will face greater scrutiny as they approach their 2030 and 2050 deadlines. In the meantime, the first climate reports from listcos could arrive as early as next February, as mandated by SGX.
With FY2022 as a trial year of sorts, issuers and investors will likely spend the coming year examining the quality of these reports.
Climate disclosures will then become mandatory from FY2023 for listcos in the financial, agriculture, food and forest products, and energy industries. The materials and buildings, and transportation industries must do the same from FY2024.
