The extreme heat across Southeast Asia has focused attention on the urgent need to accelerate climate action. The International Energy Agency (IEA) recommends the global phaseout of unabated coal power generation by 2040 and doing so is a critical step towards avoiding the most severe impacts of climate change. While the Singapore government has been championing the need to do so, coal remains a key energy source in the region - and financing the transition to sustainable energy is an enormous challenge that involves the combined efforts of both private money and government policy.
In Southeast Asia, coal power provides more than 50 per cent of power generation and more than half of the coal plants in the region have another 20 to 30 years of operation left. The existing global coal fleet alone will exhaust two-thirds of the world’s carbon budget. Despite the pledges and commitments of governments and financial institutions, 2023 saw the world’s highest net increase in operating coal capacity since 2016, with almost 30 gigawatts (GW) of new coal capacity in Southeast Asia’s pipeline. To meet net zero targets and avoid the worst effects of climate change, we must close coal plants early while ensuring electricity access and energy security – a costly endeavor.
The Singapore government recognises the financial sector’s pivotal role in this transition and local banks DBS, UOB and OCBC have quickly fallen in line to declare their support for coal phaseout transactions. Phasing out coal involves more than just financing the closure of coal plants; it requires ending support for any new coal expansion. This means halting financing for coal developers, ending financing to clients who have no plan to transition away from coal before 2030 in OECD and European countries and 2040 globally. The only exception would be for providing financing for the early decommissioning of coal assets.
Singapore banks need stronger coal policies
A financial institution’s coal policy is a set of guidelines that determines how (and if) it funds coal-related projects and companies. It outlines commitments to reducing or ending financial support for the coal industry in line with climate commitments. Any loopholes in these policies risk perpetuating the continued financing of coal expansion. Such restrictions on financing can result in immediate, quantifiable outcomes. A study by Harvard Business School found that coal plants owned by companies receiving finance from banks with coal policies were more likely to be retired. The authors estimate a reduction of a gigaton of carbon emissions as a result of such policies.
Reclaim Finance examined the track record of Singapore’s local banks in financing the coal industry, including their support for some of the world’s largest coal companies. Recent data published by German non-profit, Urgewald, reveals that despite commitments in 2019 to cease project financing for new coal mines or power plants, Singapore’s banks remain involved in supporting the coal industry.
Over the past four years, the three banks provided nearly US$2 billion in syndicated loans and capital market issuances to the coal industry. DBS led this problematic trend, with US$1.12 billion in financing to the coal industry, and still counts major coal developers like Glencore and the Adani Group as its clients, despite evidence of their human rights violations, extensive corruption environmental destruction. This huge sum could have instead been directed towards improving energy grid infrastructure and investments in renewable energies, key elements needed for a successful energy transition.
It is commendable that after the banks adopted their 2019 commitment to cease project financing, loans and capital market issuances for the coal industry dropped from a high in 2018 of US$1.4 billion to US$434 million in 2023. But any continued support for the coal industry at the corporate level risks undermining new commitments to phaseout transactions at the project level and sends the wrong ‘business-as-usual’ signal to the coal industry. For a real and lasting phaseout of coal, Singapore banks must adopt more ambitious coal policies that exclude financing for companies and their subsidiaries that still have coal expansion plans.
Opportunity for Singapore’s regulators
Regulators have a crucial role to play in guiding and enforcing these changes. Singapore has the potential to be a global leader in financing the energy transition, but directing private finance towards sustainable investments requires robust and clear regulatory frameworks. Implementing financing regulation using instruments such as climate-specific capital requirements could create dedicated financing for the early closure of coal assets and investments in sustainable power. For example, capital requirements for financial actors could be aligned with the IEA recommended 6:1 ratio – for every dollar invested annually in fossil fuels, six dollars must be invested in “clean” energy supply. Such requirements, combined with mandatory climate-related financial disclosures, would enhance transparency in reporting coal and other fossil fuel financing.
Singapore could also lead the creation of standardised metrics and international standards for coal phaseout financing and sustainable investments. For instance, policymakers could lead the international development of a new “phaseout emissions” class for the financed emissions of financial institutions attributable to the closure of fossil fuel assets. This would address banks’ concerns about increasing their financed emissions when investing in such transactions.
Policymakers can work with private finance to ensure a real and lasting energy transition in the region. For a genuine coal phaseout, it is essential that private banks cease funding for any new coal expansion and redirect these funds towards investments in grid infrastructure, renewable energies the decommissioning of coal assets. This approach will enable Southeast Asia to provide affordable electricity for communities while meeting climate goals. Through strong regulatory frameworks and proactive local banks, Singapore can pave the way for a sustainable and resilient energy future for the region.
Danielle Koh is a policy analyst at Reclaim Finance. The data referenced in this article was taken from the database Still Banking on Coal by the NGO Urgewald, last updated in May 2024.
