DBS to phase out thermal coal-related lending by 2039

Singapore

DBS will phase out thermal coal exposure by 2039, making it the first Singapore bank to commit to ceasing financing in this area.

Singapore's largest bank announced on Friday that it will stop onboarding new customers who derive more than a quarter of their revenue from thermal coal with immediate effect.

From January 2026, DBS will also stop financing customers who derive more than half of their revenue from thermal coal, except for their non-thermal coal or renewable energy activities.

Both thresholds will be lowered with time.

The bank will also engage with customers to establish transition strategies and incorporate greenhouse gas reduction targets in all applicable sustainability-linked loan structures.

The bank's announcement comes as financial institutions across the globe face growing pressure from shareholders and lobby groups to avoid investments in the fuel.

Singapore's three local banking groups - DBS, OCBC and UOB - had in 2018 announced that they would stop financing new coal-fired power plants.

DBS's latest pledge takes this a step further, as existing projects with thermal coal exposure will also be phased out. 2039 was chosen as the target year because DBS's existing long-tenor exposure will run off by then.

The bank's exposure to thermal coal mining at the end of 2020 was S$1.48 billion, representing 0.29 per cent of its institutional banking group's total exposure, up from S$1.17 billion at the end of 2019.

Its exposure to coal-fired power plants went down to S$1.38 billion at the end of 2020 - from S$1.63 billion the year before - representing 0.27 per cent of the group's total exposure.

At the same time, exposure to renewable energy projects has increased to S$4.2 billion last year, from S$2.85 billion in 2019, the bank said on Friday.

Tan Su Shan, DBS's group head of institutional banking, said: "Every year counts in the journey towards a low-carbon future and we recognise the increasing need for transition financing to help industries gradually navigate away from brown to green."

To scale the reach and supply of renewable energy, the bank will increasingly finance projects by leading energy players in the region, she said.

DBS has been revising its coal commitments over the last few years. In February 2018, the bank said it will restrict financing to only coal-fired power projects which adopt more advanced technologies that emit lower carbon emissions, as well as stop financing new thermal coal mining projects. In April 2019, it announced a blanket cease in financing new coal power assets.

Responding to DBS's announcement, OCBC and UOB said they will continue to reduce coal exposure. Both banks did not commit to phasing out thermal coal exposure and were not able to share figures on existing exposure.

OCBC was the first bank in South-east Asia to pledge to stop financing new coal-fired power plants in 2019. In September last year, it stopped financing new thermal coal mines.

Chng Bee Leng, who oversees OCBC's risk policy and risk management functions, said the bank continuously reviews its risk policies relating to sectors with "elevated" environmental, social and governance risks.

UOB has also stopped financing new coal-fired power plant projects and project financing of greenfield thermal coal mines in 2019.

UOB's chief sustainability officer Eric Lim said his bank will assist existing clients in their diversification plans, as well as in adopting technologies like carbon capture sequestration.

Banks worldwide have made pledges to cut thermal coal financing in the past year.

In December, Malaysia's CIMB announced that it will phase out coal from its portfolio by 2040. It was the first Southeast Asian bank to commit to a coal-exit strategy with a deadline.

Australia's big four banks also set various targets to exit direct thermal coal investments across the 2030-35 time horizon.

Spanish bank Santander announced in February that it will cut all exposure to thermal coal mining and stop providing services to power generation clients that earn more than 10 per cent of their revenue from thermal coal by 2030.