Singapore banks add ESG to lending criteria

Signal of change / Singapore banks add ESG to lending criteria

By Will Ingram / 29 Oct 2015

The Association of Banks in Singapore (ABS) has announced new industry guidelines which aim to integrate sustainability into the sector.

Environmental, Social and Governance (ESG) criteria will be added to banks’ lending decision-making and risk assessments, along with increased transparency and accountability on such issues.

For the banks involved (158 foreign banks along with the three largest local banks - DBS, UOB and OCBC) this means:

-    A commitment to responsible financing published in their annual reports
-    The release of full ESG frameworks in 12-18 months’ time
-    Allocation of resources for internal capacity building and education in related topics

This announcement follows unprecedented levels of haze (exacerbated and extended by this year’s El Niño episode) which engulfs the city-state and the surrounding region leading to school closures, air-traffic delays and costs running to billions of dollars.

Investments in forestry companies who create peatland fires in Indonesia – the origin of the haze – have been publically criticised.

The ABS acknowledges that “responsible financing is vital in the sustainable development journey”.

Image credit: Peter Gronemann / Flickr

So what?

Financial institutions around the world have begun to sit up and listen to concerns about global environmental change and sustainability. This was evident recently in stern warnings from the Bank of England’s Governor, Mark Carney, and recognition of the risks financial institutions face from climate vulnerability is slowly becoming mainstream throughout the various financial sectors. 

Yet banks in Singapore and the region have historically underperformed on such ESG issues.

Even Ong-Ang Ai Boon, Director of the ABS, admits: “While some major global banks are further ahead, others have just started on their journey.”

This commitment by the ABS will be welcome news to environmentalists and the public, who are keen to see positive action on haze. However, there are some sceptical voices which question whether these measures go far enough.

Will this public commitment effectively enforce long-term change in lending practices? This will depend on further mechanisms to ensure the public commitments influence practice, and also on the reputations that specific banks seek to cultivate.

How far might such shifts in lending practices catalyse systemic change in the region, specifically in the forestry and agricultural sectors?

Ong-Ang Ai Boon is careful to note that it will not be a silver bullet: "It will shape long-term changes in the agricultural practices of banking customers."

Sources

ABS (October 8, 2015) Banking sector in Singapore to advance responsible financing with the lanuch of new industry guidelines

Eco-Business (October 8, 2015) Haze prompts Singapore banks to set ESG guidelines

What might the implications of this be? What related signals of change have you seen?

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