DBS updates transition finance framework; notes higher oil and gas portfolio emissions in 2024
Enabling activities such as the development of sustainable aviation fuels can now be eligible for financing
SOUTH-EAST Asia’s largest bank has updated its transition finance framework to provide companies in hard-to-abate sectors with more clarity on which areas of their businesses are eligible for transition financing, DBS said on Thursday (Mar 6).
The revision comes after lengthy discussions in the sustainable finance sector on how high-emitting companies can have greater access to financing for decarbonising their carbon-intensive business activities.
The changes were revealed in DBS’ 2024 sustainability report, which also provided an annual update on the bank’s net-zero progress.
Financed emissions from the oil and gas portfolio rose marginally in 2024 compared with the year before, though the lender noted that the sector was still on course to hit interim 2030 targets.
However, the portfolio emissions reductions from shipping and steel were not on track.
Besides these three sectors, DBS had set decarbonisation targets for four other sectors in 2022: power, automotive, aviation and real restate.
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Transition finance framework
Updates to DBS’ transition finance framework include refining the list of eligible transition activities, expectations for companies’ transition plans, and the types of financial products available to organisations, said Shilpa Gulrajani, head of sustainable finance at the lender’s institutional banking division.
Besides financing individual or company-wide transition projects, the framework now includes enabling activities such as the development of sustainable aviation fuels, a critical factor in decarbonising the aviation sector.
The revised framework, first launched in 2020, also sets clearer expectations across the broader ecosystem – including corporates, regulators and investors – to foster a more structured and transparent approach to transition financing.
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The aim of these changes is to allocate capital to companies and economic activities that are still not green, but are transitioning to become greener, said the report.
Oil and gas
Absolute financed emissions from oil and gas rose to 26.4 million tonnes of carbon dioxide equivalent (tCO2e) in 2024, slightly higher than the 26.2 million tonnes tCO2e in the previous year.
While DBS has shifted its financing strategy for the sector to prioritise lower-carbon solutions, it noted that costs and feedstock availability are barriers to expanding alternative fuel production.
It said in its report: “We anticipate that, despite our efforts, some customers may not align with our 2030 targets and net-zero ambition. In such cases, we may need to consider whether to reduce our exposure. This choice will be informed by our policies and strategic portfolio considerations, including sustainability, credit and commercial alignment.”
The sector’s decarbonisation in Asia would depend on national oil companies, given their dominance.
DBS said it will focus its financing on solutions such as the coal-to-gas transition, and the implementation of biofuel blending to reduce reliance on conventional fossil fuels.
The development of green hydrogen, carbon capture, storage and utilisation, as well as ammonia, are other long-term strategies the bank is looking at.
Power
Financed emissions from the power sector in 2024 came in at 208 kg of CO2 per megawatt hour (kgCO2/MWh), down from 234 kgCO2/MWh in the previous year.
This was underpinned by a continued shift towards financing renewable energy players, which now make up 62 per cent of DBS’ portfolio, up from about half in 2023.
The bank will increase its focus on transmission distribution, as well as smart grid solutions, including battery storage.
Steel and shipping
Like in previous years, steel and shipping continue to be the laggards.
The weighted emissions intensity of DBS’ shipping portfolio was 13.4 per cent above the 2024 recommended target. Though lower than the 15.6 per cent in 2023, it still underperformed relative to the sector’s decarbonisation pathway.
The bank said that this was due primarily to the financing of shuttle tankers. Excluding these vessels, its shipping portfolio would have been aligned with the International Maritime Organization’s (IMO) 2018 greenhouse gas trajectory.
However, IMO updated its net-zero pathway in 2023, and DBS said it was still evaluating the changes.
Improvements in vessel energy efficiency and a transition to alternative fuels are key decarbonisation levers for the sector. However, the bank noted that the widespread adoption of alternatives such as green methanol, green ammonia and biofuels faces significant headwinds due to high costs, insufficient supply and supporting infrastructure, as well as operational challenges.
As for steel, emissions intensity rose to 2.09 kg of carbon dioxide equivalent per kg (kgCO2e/kg), compared with 1.95 kgCO2e/kg in the year before.
DBS said that its steel portfolio is predominantly in Asia, where carbon-intensive steel production technology remains dominant. In addition, many steel plants are relatively young and not due for retirement soon.
These factors raise financial and operational challenges in retrofitting or switching to cleaner and more sustainable technologies.
When asked about the possibility of missing the net-zero targets for these two sectors, DBS chief sustainability officer Helge Muenkel said there needed to be an honest discussion around the increasingly challenging environment that banks are operating in.
Many sector-specific decarbonisation pathways have been developed based on the Paris Agreement goal of limiting global warming to 1.5 deg C. However, that threshold has already been breached, based on the latest scientific data.
“Science tells us that we are actually already exceeding it, and the path back to 1.5 deg C is insanely hard... I think the entire world will need to discuss. Do we actually still want 1.5 deg C as the goal? Is this actually achievable?” said Muenkel.
He brought up the possibility of having a pathway just for Asia, but added that this would not be a “get-out-of-jail-free” card for the region’s banks to slow their pace of decarbonisation.
In recent months, several global banks retreated on their climate commitments. Aside from exiting net-zero industry alliances, HSBC announced it was pushing back its net-zero goals by 20 years, while Wells Fargo completely abandoned them, citing a lack of conditions for its corporate clients to decarbonise more quickly.
Piyush Gupta, DBS’ outgoing chief executive officer, said in the report that the bank remained committed to supporting climate action for a low-carbon and climate-resilient economy, despite setbacks in global climate commitments.
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