UOB cuts 2023 financed emissions in most ‘dirty’ sectors except steel
It is targetting to lower the emissions intensities of clients in the power, automotive, real estate, construction and steel sectors by 2050, and to cease financing new upstream oil and gas projects from 2023
THE financed emissions for UOB in 2023 has gone down in four high-emitting sectors it has set decarbonisation targets for, with the exception of steel.
Nonetheless, the level of financed emissions for steel is still lower than a global reference pathway for the sector to achieve net zero carbon emissions, noted South-east Asia’s third-largest lender in a progress report released on Monday (Nov 11).
This is the second time the bank has released a report on the progress it has made since setting decarbonisation targets for six sectors in October 2022, amid intensifying scrutiny over banks’ green pledges and fossil fuel financing.
Besides targeting to lower the emissions intensities of the power, automotive, real estate, construction and steel sectors by 2050, it also committed to cease financing new upstream oil and gas projects from 2023, though no targets were set for downstream activities. These six sectors make up 60 per cent of UOB’s corporate lending portfolio.
It had previously pledged to exit thermal coal financing by 2039.
Steel
Financed emissions for the steel sector increased to 1.64 tCO2/tonne in 2023, which is 6 per cent below the reference pathway.
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While this means that UOB’s steel portfolio emissions is lower than the global benchmark on steel decarbonisation, the level of financed emissions has actually gone up from 1.61 tCO2/tonne the year before.
The increase in financed emissions was a result of higher emissions intensities from its clients in the steel sector, in particular for steel plants in China and South-east Asia, based on proxy data for 2023. This is attributed to a higher proportion of high-emitting blast furnace steel plants, as opposed to more environmentally friendly steel plants that use electric arc furnaces, said UOB.
It added that its calculations are primarily based on proxy data as client-level data remains limited in the sector, given the bank’s exposure to smaller steel producers and traders in South-east Asia.
It is estimated that 83 per cent of emissions in the region’s steel production will be from steel plants with blast furnaces as new capacity continues to be added.
“Though we are actively supporting our clients’ transition to lower emissions technology, we anticipate our emissions reductions for the sector will be muted given our high reliance on proxy data for financed emissions calculations,” said the UOB report.
Power
The power sector, which is the biggest contributor to UOB’s financed emissions, has the largest drop in emissions intensities to 242 kgCO2/MWh in 2023 from 364 kgCO2/MWh in the previous year.
The level of financed emissions was also 37 per cent lower than a regional net zero pathway for the power sector – the biggest difference among all the other sectors.
The change in its power sector portfolio emissions was driven primarily by improvements in its existing clients’ emissions intensities, as well as those of its new clients – most of which were renewable energy clients, said UOB in the report.
The bank expects emissions intensity for the sector to continue to improve as it gradually shifts to lower carbon fuel sources and as long as the development of renewable energy stays on a growth trajectory.
UOB said it will continue to support the transitioning of its high-emitting energy clients by financing their emissions reduction efforts and renewable energy projects, as well as expanding the range of sustainable ecosystem solutions.
It is also looking to capture grid interconnectivity opportunities within South-east Asia and Greater China, focusing on the cross-border export of renewable energy and equipment for renewable energy sources.
Real estate
The real estate sector saw a decrease in financed emissions to 80 kgCO2/m2 in 2023, from 82 kgCO2/m2 the previous year.
However, the level of financed emissions in 2023 was 11 per cent lower than the reference pathway, as opposed to 14 per cent the year before.
This means that the rate of decline in financed emissions between 2022 and 2023 is actually slower than the selected reference pathway by the Carbon Risk Real Estate Monitor, the global standard setter for the decarbonisation of real estate assets.
The slight decrease in real estate portfolio emissions is mainly due to overall lower emissions intensities of UOB’s clients in its proxy data, as well as improvements in emissions data reported by its clients.
The bank also added new clients with lower emissions intensities, primarily in the industrial and residential segments.
However, similar to the steel sector, client-level data remains a challenge in real estate, with a heavy reliance on proxy data.
“Moving forward, we expect the sector’s emissions intensity to continue improving as the construction of new buildings complies with heightened energy efficiency requirements, and as the retrofitting of older buildings continues apace. We also see the increased purchase of renewable energy certificates by real estate clients with decarbonisation commitments. To this end, we will deepen our focus on providing financing in these areas,” said UOB in the report.
Construction
Financed emissions for the construction sector came in at 19 tCO2/S$ million, which is 18 per cent lower than the reference pathway. This is an improvement from 22 tCO2/S$ million in the previous year.
Emissions intensities improved for UOB’s construction clients due to a decrease in emissions in its proxy data. The decrease in emissions intensities is further amplified by the growth in company revenues resulting from a higher demand in construction projects after the Covid-19 pandemic.
UOB said it relies heavily on proxy data as the measurement and reporting of carbon emissions within the construction sector are still at a nascent stage, especially among the small and medium-sized enterprises in South-east Asia, which comprise a large part of its portfolio.
The bank will consider including the impact of Scope 3 emissions – which refer to indirect emissions arising from a company’s value chain – when data is available. While the bank has been providing sustainable financing to these clients to green their supply chain, there has been no direct impact on the sector’s emissions intensity as the bank assesses only their Scope 1 and 2 emissions, which refer to emissions from business activities and the electricity purchased.
“We expect client and proxy emissions intensity levels to continue improving as the construction sector’s Scope 1 and Scope 2 emissions decline with more decarbonisation initiatives. These include investments in renewable energy, energy efficiency improvements and increased efforts to electrify vehicle fleets,” said UOB.
Automotive
The automotive sector’s 2023 financed emissions went down to 121 gCO2/vehicle-km – which is 4 per cent below the reference pathway – from 138 gCO2/vehicle-km the previous year.
These figures are derived after UOB updated the data source for the sector’s emissions intensity.
The improvement came from a growing proportion of plug-in hybrid and electric vehicles (EV) being manufactured, as compared with internal combustion engine vehicles. New financing in 2023 was extended to both existing and new clients with lower emissions intensity than last year. There was also increased financing of the EV value chain.
“We expect the sector’s emissions intensity to continue improving as countries persist in their move towards adopting more EVs and as our exposure to the EV value chain increases, though this may be muted as adoption rates are lower than forecasted,” added UOB.
Oil and gas
The report did not provide information on financed emissions from UOB’s remaining lending commitments to its oil and gas clients against a reference pathway for the sector.
This is because the current decarbonisation pathways for the sector are not realistic in their reflection of critical aspects of a “just” transition, given the diverse and developing nature of the region’s economies, noted UOB. A “just” transition refers to a philosophy that advocates for the reduction of carbon emissions while minimising its impact on the economy and the people employed in the fossil fuel sector.
Hence, the bank said it will focus on limiting the supply of fossil fuels to the main economy, avoiding an overabundance of cheap fuels and supporting an orderly transition, while balancing the need for socioeconomic growth in the region.
“The transition away from fossil fuels and concurrently scaling up renewable and clean energy sources across the region must take into consideration the need for energy security, and has to be undertaken in a just, orderly and equitable manner,” it added.
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