Singapore banks flagged for financing Harita’s coal-powered nickel smelters; OCBC tops list of financiers

[SINGAPORE] The three local banks in Singapore have been flagged by an environmental advocacy group for financing coal-powered nickel smelters and refineries run by Indonesia’s Harita Group.

OCBC has topped the list of financial institutions that are said to have loaned money to the conglomerate, whose core business is in the natural resources sector. According to a recent report by environmental group Market Forces, the total amount loaned since 2018 came up to US$635 million.

UOB was second at US$201 million, while DBS is said to have deployed US$87 million over the same time period.

The Business Times has not been able to independently verify these amounts as banks typically do not comment on their corporate lending transactions.

BNP Paribas, Maybank, CIMB Niaga, as well as several Indonesian banks including Bank Mandiri, Bank Negara Indonesia and Bank Central Asia were also identified in the report.

Nickel is widely recognised as critical to produce batteries for electric vehicles (EV) and the eventual decarbonisation of the transport sector. However, criticisms have emerged on its entire value chain’s heavy reliance on coal-fired power plants.

Even though all three Singapore banks have committed to cease the financing of new coal-fired power plants, financing the production of nickel does not fall under this remit even if the extraction activities are powered by coal.

Binbin Mariana, the Asia energy finance campaigner for Market Forces, considers this to be “a giant loophole” as the funds could be used by the company to construct additional captive coal capacity. These refer to power plants not connected to Indonesia’s national grid and are built solely to power particular industrial facilities.

Banks have a responsibility to ensure that the push for EVs does not come at the cost of worsening global warming and fuelling risks of climate-related disasters across Asia, she added.

However, experts pointed out that a fully sustainable transition cannot happen overnight as it would require collective effort across the entire EV value chain with regulators setting the right policy, banks having rigorous lending conditions and nickel producers making meaningful improvements.

Reliance on coal power remains

Harita Nickel’s operations – located at the remote Obi Island in North Maluku province – are currently powered by 890 megawatt (MW) of captive coal plants, with an additional 1.2 gigawatt under construction, noted the report.

Even though the company has announced plans to commission a 300 MW solar panel facility by 2025, its reliance on coal power remains predominant.

Harita’s plans to increase production capacity pose significant environmental concerns, with projections that its annual emissions will triple to 22.45 million tonnes of carbon dioxide equivalent by 2028, read the report.

According to Harita Nickel’s sustainability report, its emissions arising from business activities – known as Scope 1 emissions – were close to eight million tonnes in 2023, representing almost 1 per cent of Indonesia’s total emissions for the year.

The financing of coal-powered nickel in Indonesia spotlights several complexities and competing needs surrounding the wider energy transition.

Indonesian President Prabowo Subianto is betting on the rising demand for nickel globally to be a key driver of economic growth.

Yet, there is currently no renewable energy source that could entirely substitute coal in nickel production in Indonesia.

Its geography has made the mass deployment of renewable energy challenging, and nickel processing requires a stable, high-volume energy source often not achievable by renewable sources due to its intermittency.

Many nickel operations are also located in remote islands that are not connected to the national grid. This has led to new captive coal capacity increasing much faster than on-grid coal.

Given that Indonesia supplies more than half of the world’s nickel, it would not be pragmatic to expect the production of nickel to be fully powered by renewable energy, said Mike Ng, OCBC’s chief sustainability officer, in response to queries from BT.

“We recognise that the transition journey is not going to be a short and quick one, and nickel is needed for swift adoption of electric vehicles now. In the absence of reliable renewable energy to fully supply the required power for nickel producers, the energy transition inevitably incurs trade-offs,” he added.

Banks’ financing frameworks

While not specifically commenting on their deals with Harita, all three banks have pointed to how their financing decisions are guided by either their responsible financing framework or their obligations to the Equator Principles, which is a set of guidelines for financial institutions to assess and manage environmental and social risks in project finance.

Ng said that transactions with a high environmental, social and governance (ESG) risk are subjected to enhanced due diligence. Clients are required to comply with the relevant laws under which they operate and have adequate policies and processes in place to manage ESG issues.

The bank has also set policies and procedures to ensure that the projects being financed are developed in a socially-responsible manner to mitigate and manage impact on the environment and neighbouring communities.

Environmental and social issues are also monitored closely during the construction and post-construction phase of the projects the bank finances, he added.

A UOB spokesperson said that the bank focuses on driving the shift towards renewable and clean energy sources within the region to support an orderly transition, and that its responsible financing sector policies contain mandatory requirements to manage ESG risks in its lending portfolio.

As for DBS, its spokesperson said that the lender is committed to enabling Asia’s just transition towards a low-carbon future, which would involve facilitating a balance of environmental, social and economic priorities across the region.

Harita’s transition plans

Harita Nickel is still committed to reducing its carbon emissions by 30 per cent from its 2022 levels by 2030, said Lim Sian Choo, its director of sustainability.

Several initiatives implemented over the last few years have collectively reduced its emissions by two million tonnes in 2024. This included enhancing the energy management and combustion efficiency of its facilities, as well as scaling up waste heat recovery, renewable energy integration, and the use of biofuels and electric vehicles.

Its production of nickel intermediaries has achieved significant reductions in energy intensity and is now below the global industry average. Its electric furnace lines also produce nickel at emissions intensities in line with Indonesian benchmarks.

Harita Nickel will be including these performance data in its upcoming sustainability report, added Lim.

As the island’s remote location complicates the integration of renewable energy sources, the company is also looking at the possibility of implementing hydrogen or biomass technologies as part of its decarbonisation planning. Within the next few months, the first 40 MW phase of its solar facility will also become operational.

Between a rock and a hard place

Given the dominance of coal in Indonesia’s energy supply, banks are arguably caught between a rock and a hard place as their financing are limited by the constraints of the external environment they operate in.

While terminating financing for all carbon-intensive projects may not be practical, especially for transition-critical sectors like nickel mining, banks can take measured steps, said Associate Professor Zhang Weina at the National University of Singapore (NUS) Business School.

This includes setting clear energy efficiency and carbon intensity thresholds in financing conditions, requiring clients to present credible, time-bound transition plans that include not just carbon reductions but also human rights safeguards and recycling targets, as well as monitoring that they adhere to these plans.

Nickel miners and EV battery producers should not be evaluated only on current emissions. Lifecycle emissions, responsible sourcing, use of renewable energy and end-of-life recycling plans should also be considered.

“At present, our three local banks have not fully disclosed their requirements for EV battery producers in terms of their carbon footprints, transition plans, or labour and end-of-life recycling practices. More transparency and disclosure is needed,” added Prof Zhang, who is also deputy director of the Sustainable and Green Finance Institute at NUS.

Banks should also work with its nickel clients to develop roadmaps for carbon intensity across the organisation while also considering their growth plans, said Benjamin McCarron, managing director of sustainability consultancy Asia Research and Engagement.

He added that bank policies should prohibit refinancing for companies that fail to develop and implement credible plans for their carbon-intensive assets.

Beyond banks, McCarron said that government policy is also needed to both ensure responsible development of the nickel industry, such as providing subsidies to companies expanding renewable use and supporting those building transmission that will give them better access to renewables.