‘Water will be critical’, says UOB, first Singapore bank to publish TNFD-aligned report

These sectors, which account for a fifth of its corporate lending portfolio, include: agriculture, metals and mining, built environment, oil and gas, as well as waste management. However, UOB left out the latter two industries from its final analysis, citing “minimal nature dependencies” on oil and gas – as it has stopped financing upstream projects since 2023 – and “non-material exposure” in its loan book to waste management.

At a media briefing on Friday, UOB’s chief sustainability officer Eric Lim told Eco-Business that water will be “one of the most critical areas to focus on” when he was asked if disclosing water-related data might be one of the low-hanging fruits companies can get started on.

“Water is cross-cutting. Every industry generally needs water or suffers the effects of water in some way. Too much water, too little water or water of the wrong kind all have implications,” said Lim. “We can see this not only in agriculture, but in the built environment and some of the high-tech industries.”

Water-related disclosures has emerged as a key trend to watch amid Asia’s data centre boom. In 2023, environmental reporting non-profit CDP saw that demand for corporate water risks more than doubled compared to the year before, with tech giants like Apple and Amazon among those that financial institutions requested data from.

In its report, UOB highlighted how building construction and mining activities depend on nature for protection against physical hazards like flood and storms, while potentially polluting water sources through waste disposal and excavation activities.

Lim noted that the bank has applied a “double materiality” lens to its nature-related disclosures, which TNFD’s framework does not require. 

Unlike the “single materiality” approach used by the International Sustainability Standards Board (ISSB), which focuses solely on financial impacts, double materiality also considers how a company’s activities affect the environment and society.

Last April, ISSB – whose climate and sustainability standards are steadily gaining traction among Asian regulators – began work on nature-related issues, drawing on TFND’s recommendations. 

To date, only eight firms in Singapore have committed to making TNFD-aligned disclosures by 2025. They include real estate giant CDL – which produced its first TNFD report last March – as well as agri-business Olam Agri.

Tracking nature financing

Lim said that he was “pleasantly surprised” to learn that about 60 per cent of UOB’s sustainable finance portfolio – which stands at S$58 billion (US$44 billion) as of end-December 2024 – already embeds nature concepts, alongside more mainstream climate considerations.

The bank conducted this internal assessment by mapping parts of its sustainable financing portfolio to its existing frameworks, such as those for sustainable food and agribusiness as well as sustainable trade finance. 

“There are a lot of frameworks out there where nature is already embedded in, we just haven’t thought of it that way,” said Lim, who pointed to how Singapore’s green building certification, for example, already considers nature concepts like water efficiency, pollution and circularity, in addition to energy efficiency.

“​​Nature sounds like a new topic for sustainability, but if we step back and think about it – nature was the original ‘sustainability’. We actually understood nature protection way before we thought about [concepts like] CO2 or net zero.”

Given that it now has the capability to do so, UOB will begin tracking nature financing as part of its sustainable financing portfolio in subsequent reports, he said.

At the moment, green loans make up the bulk of its portfolio (55 per cent), followed by sustainability-linked loans (29 per cent) and sustainable trade finance (12 per cent). Transition finance – which competitor DBS has signalled intentions to tap more into with its updated transition finance framework earlier this month – makes up just one per cent of its sustainable finance loan book.

Gaps in data, valuation and scenarios

Preparing the report has thrown into relief the need for more granular data for nature and biodiversity, Lim said.

He added that the financial impact of some of the identified nature-related risks in the report remain unclear. For instance, while the bank recognises agricultural production’s high dependence on water, it has yet to estimate how water stress could affect a company’s cash flow – and, in turn, UOB’s ability to recover its loans. 

In response to questions from the media, Lim said this proprietary way of measuring the financial impact of these nature-related risks – which he expects to vary slightly across lenders – would be the “secret sauce of the banks”. But at the moment, the industry has “no consistent way” of doing this.

Furthermore, unlike how there are 1.5°C or net zero by 2050-aligned scenarios for climate, nature lacks these common scenarios that banks can use to engage with clients.

While the Kunming-Montreal Global Biodiversity Framework has set out targets to halt and reverse nature loss by 2030, including to preserve 30 per cent of the Earth’s land and oceans, these have not been translated down to what that means for agricultural production in Thailand, for instance, said Lim.

In its report, UOB stated that it is currently part of an initiative with other local banks with the Cambridge Institute for Sustainability Leadership (CISL) to develop nature scenarios for the material sectors in its portfolio.

“There are a lot of scenarios that the industry or various countries will need to continue to develop to help the companies navigate through nature,” said Lim, adding that these will need to be more localised than the current high-level guidances that the Science Based Targets Network (SBTN) has put out, since nature is “hyper-local”.

“If we take a look at SBTN and we reference the work of [its sister organisation] Science Based Targets initiative (SBTi) as an example, companies can do work to significantly decarbonise without being part of SBTi,” he said. “Your local or value chain stakeholders are way more important in galvanising action than SBTN or SBTi.”

Earlier this week, SBTi proposed more flexibility in setting targets for Scope 3 emissions from its value chain and for companies in lower-income countries, after many in developing Asia lost their SBTi net-zero target validations last year. Singapore’s three major banks, including UOB, have yet to seek SBTi approval for their emissions reduction targets.

In response to questions on who should develop these nature-related guidelines, Lim said that corporations typically respond to one of three stakeholders: governments, companies at the top of the value chains and investors.

While institutional investors had been “a very strong voice” since the beginning of the climate journey, the current environmental, social and governance (ESG) backlash has made investors “more circumspect”, said Lim. So buyers up and down the supply chain and the government will probably play a bigger role than investors for now, he said.

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There are a lot of scenarios that the industry or various countries will need to continue to develop to help companies navigate through nature. 

Eric Lim, chief sustainability officer, UOB

What ESG retreat means for nature

Following the mass exodus of North American financiers from the Net-Zero Banking Alliance (NZBA) after the re-election of United States president Donald Trump, Asia has seen its first wave of exits from the climate pact in the past month.

Earlier this week, media reports revealed that Mitsubishi UFG Financial Group – Japan’s largest lender and an NZBA steering group member – is set to join Sumitomo Mitsui Financial Group and Nomura Holdings in quitting the United Nations-convened group.

However, Lim noted that unlike their counterparts in North America and Japan with heavy exposure to the US, Singapore banks “don’t need to de-risk by leaving the NZBA”. 

“We were never overly idealistic, nor did we push for net zero in an acrimonious way within our societies,” he said. “In Singapore, the conversation on decarbonisation is aligned across the government, regulations, real economy and banks – so it’s a very practical kind of conversation.”

In fact, Lim sees the shift towards more pragmatic discussions as healthy, with a focus on implementing and scaling low-carbon business models that are commercially viable. He expects continued momentum around renewables, electric vehicle adoption and energy efficiency in the built environment across the region.

Lim believes that the industry’s efforts to nature can learn from challenges faced on the climate front. 

“There is a lot of room for nature to be adopted in a sensible way,” he said. “Don’t be overly idealistic about it, but focus on the pragmatic impacts that create value and resilience for our economies and communities.”