Amid the first two Asia Pacific (APAC) banks exiting the sector’s net zero pact, Southeast Asia’s largest lender DBS has reiterated its commitment to its climate targets in its latest sustainability report.
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Addressing the “elephant in the room” at a media briefing last Friday, DBS chief sustainability officer Helge Muenkel said that recent developments have sparked off extensive discussions with the board and senior management, but assured journalists that there remains “really strong support for the sustainability agenda” within the Singapore bank.
In February, Australia’s Macquarie became the first APAC bank to quit the Net-Zero Banking Alliance (NZBA), following a mass exodus of North American financiers since Donald Trump got reelected as the United States president last November. Earlier this week, Japan’s second-largest bank Sumitomo Mitsui Financial Group withdrew from the NZBA, with Nomura Holdings reportedly considering doing the same.
Since joining in 2021, DBS remains a member of the United Nations-convened alliance, where signatories pledge to reduce greenhouse gas emissions to virtually zero by 2050.
“While there have been some setbacks in global climate commitments, DBS remains committed to supporting climate action for a low-carbon and climate-resilient economy,” the bank’s outgoing chief executive officer Piyush Gupta stated in its annual sustainability report published on Thursday.
The lender remains on track for five out of seven sectoral decarbonisation targets it set out in 2022, which include the power, oil and gas, automotive, real estate and aviation sectors.
In particular, DBS said that renewables made up about 62 per cent of its power portfolio in 2024, up from half the year before. It has also further cut its thermal coal exposure to S$1.3 billion (US$977 million), down from S$1.8 billion (US$1.4 billion) in 2023.
Similar to the past two years, steel and shipping fell short of their reference targets. The emissions intensity for the steel sector rose by over 7 per cent in 2024 compared to the previous year, after coming down in 2022, based on the bank’s sustainability report.
While the bulk of emissions in steelmaking come from the use of metallurgical coal in blast furnaces which are used to produce most of Asia’s steel, DBS excludes these upstream supply chain emissions from its Scope 3 accounting, which it states is in line with current industry guidances and practices of peer banks.
The bank had previously said that it was assessing the feasibility of adopting a regional reference scenario for steel that is more suited to the profile of its clients and host countries’ development status, compared to the global pathway used to date. But Muenkel clarified that given the diversity of countries across Asia, an “Asian pathway” does not exist; and localised pathways might just be needed for big single markets, like China and India.
Meanwhile, shipping improved slightly in its alignment with the target trajectory to halve emissions in 2050 compared to 2008 levels.
Muenkel said that as hard-to-abate sectors, steel and shipping will still need more time before decarbonisation technologies become commercially viable. The report also stated that as the bank further extends support to decarbonise high-emitting steel players, this “will likely exert upward pressure on our short-term emissions performance.”
Progress in data coverage for the food and agriculture as well as chemical sectors – industries the bank has yet to set targets for – also means that this year, DBS “is really going to look into what we can actually do with these two sectors,” said Muenkel.
DBS said that it remains difficult to set a single emissions reduction target for both sectors, but that it will “continue to closely monitor the developments in decarbonisation pathways” and consider setting sub-sector targets once industry consensus on these pathways emerges.
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The entire world will need to discuss: Do we actually still want 1.5°C as the goal? Is this actually achievable? That’s what I mean by having honest conversations around what is the world we live in… This doesn’t mean at all that we take the foot off the pedal.
Helge Muenkel, chief sustainability officer, DBS
Transition finance framework update
For the first time since launching in 2020, DBS has updated its transition finance framework to clarify what activities qualify for transition finance, to navigate gaps in Asia’s emerging taxonomies.
There has been a proliferation of transition finance guidances in recent years, including the Singapore-Asia Taxonomy – launched in 2023 to cover eight sectors accounting for 90 per cent of the region’s emissions. But Muenkel noted that these guidances still do not cover everything DBS does.
“Because there are some ‘white spaces’, it’s important for us to establish robust processes and governance to make sure whatever we want to finance as transition finance is resolved,” he said.
A Sustainable Fitch report last month also cautioned that varying levels of ambitions and consistency in what the region’s existing taxonomies count as credible “transition” activities have limited their adoption.
Shilpa Gulrajani joined DBS as its head of sustainability for institutional banking after over two decades with French lender BNP Paribas. Image: DBS
Shilpa Gulrajani, head of sustainable finance of the institutional banking group at DBS and a co-lead of the Singapore-Asia Taxonomy workstream, said that “there is continuous discussion on seeing the on-ground applicability and the ability to link it to financing”.
Therefore, despite the Singapore-Asia Taxonomy being “a very solid guidance”, financiers will need to take the initiative to assess based on the decarbonisation technologies available as well as the overall carbon emissions and intensity of the sector, that a certain activity will qualify for transition finance, she said.
“That’s where we would need credible transition plans from clients. We are also looking forward to the second-party opinion market developing and delivering volumes on transition plans,” said Gulrajani.
The bank is increasingly seeing transition-labelled financing grow, on top of the green, social and sustainable bonds and loans, said Gulrajani, adding that the bank aims to have “well-identified transition financing” as a part of its overall sustainable loan book.
When asked whether there is a target DBS has set for transition finance, as it has done for its overall sustainable financing commitments, Gulrajani told Eco-Business that there is no specific number as yet, though there is increasing interest from clients who have already identified investments and capital expenditure to deploy towards it.
Gulrajani cited its AU$250 million (US$158.6 million) in portfolio financing for Akaysha Energy to develop two battery energy storage system projects in Australia for grid stabilisation as an example of what would be categorised as “transition” finance, since it cannot be considered a “pure green” activity as there is still an element of coal in the grid.
Another example of transition finance Gulrajani cited is being pumped into Singapore-based renewable energy firm Rexus Bioenergy’s new biomass power plant, which is integrating carbon capture technologies to reduce the emissions of a waste-to-energy plant slated for completion by 2026.
As of end-2024, DBS has committed S$89 billion (US$66.9 billion) in sustainable financing loans, net of repayments, which is up 27 per cent from the previous year.
In addition, the bank has facilitated S$38 billion (US$28.6 billion) in sustainable bond issuances – up from S$18 billion (US$13.5 billion) last year, which Muenkel partly attributed to the markets being in a better shape – as an active bookrunner. These consist of green, social, sustainable, transition and sustainability-linked bonds.
DBS was a joint bookrunner in the US$409 million (US$307 million) green bond issuance by Indian conglomerate Adani’s renewable energy entity last February, which climate finance watchdogs have warned risks financing the parent firm’s coal expansion activities. The bank previously declined to comment on the green bond deal and cited the presence of due diligence processes to understand how clients managed their environmental, social and governance (ESG) issues.
Last November, Adani Green reportedly appointed nine banks – including DBS – as joint bookrunners to raise US$600 million through another bond issuance, but the deal was cancelled after Adani Group’s senior executives were indicted by the US department of justice for bribery and securities fraud, though it has denied the charges as “baseless”.
Growing momentum for Asian pathways
Given that the world has breached the 1.5°C warming limit for the first time last year, Muenkel said that “honest discussions” will need to take place around whether the threshold set out by the Paris Agreement is still achievable.
“This doesn’t mean at all that we take the foot off the pedal,” he said. “We have never had as many client engagements as in the last couple of months, so we are all fighting really hard. But if science tells us the 1.5°C window is closing, that’s not for DBS to change.”
Most of the bank’s decarbonisation targets were developed in 2022 based on global 1.5°C-aligned glidepaths, except for the real estate sector, for which a location-specific pathway by Carbon Risk Real Estate Monitor (CRREM) had already existed back then.
It had already started working back then on regional pathways, which is “now gaining momentum,” said Muenkel. “But we can’t do this alone. We can’t come out with a DBS steel pathway. It needs to be part of an ecosystem.”
For this reason, despite “promising signs that there’s willingness to look into it”, Muenkel does not expect to see many Asian pathways anytime soon as reaching consensus takes time, he said.
Muenkel also stressed that an Asian decarbonisation pathway should not be seen as a “get out of prison card”, but one that requires innovative solutions to come up with new sources of capital. One example he cited was the bank’s involvement in the Monetary Authority of Singapore’s initiative to develop “transition credits”, referring to carbon credits generated from the early phase-out of coal, as a new source of capital to shut down the region’s relatively young coal fleet.
“Asian decarbonisation doesn’t necessarily mean slower decarbonisation,” he said. “We need innovation on decarbonisation technologies, financial innovation and so on. We also want to drive that.”
