UOB’s financed emissions for ‘dirty’ sectors decline in 2022
UNITED Overseas Bank’s financed emissions for five high-carbon emitting sectors in 2022 has gone down, the lender’s first annual update since announcing its decarbonisation targets showed.
The level of financed emissions – which refer to greenhouse gas (GHG) emissions associated with the bank’s lending activities – was between 7 per cent and 14 per cent below its 2022 targets, which is referenced from regional net-zero pathways specific to each of the five sectors. The bank has also provided S$38 billion in sustainable financing as at the end of September this year.
Exactly one year ago, South-east Asia’s third-largest lender announced its plans to reduce the emission intensities for these five sectors – power, automotive, real estate, construction and steel.
It also said that it will stop financing new upstream oil and gas projects that have been approved for development after 2022, amid intensifying scrutiny over banks’ green pledges and fossil fuel financing.
These six sectors make up about 60 per cent of UOB’s corporate lending portfolio.
The power sector, which is the biggest contributor to UOB’s financed emissions at 382 kgCO2/MWh, was 8 per cent below a regional net-zero pathway for the sector, indicated an update from the bank released on Tuesday (Oct 31).
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It came down from its 2021 baseline emissions intensity of 390 kgCO2/MWh, which has been revised upwards from 365 kgCO2/MWh due to model refinements.
UOB said that the change in its 2022 portfolio emissions for this sector was driven primarily because it added new renewable energy clients and limited its exposure to new clients that have high emission intensities. It added that its non-renewable energy portfolio clients improved their emissions intensities.
“We continue to support our energy clients in the power sector that are committed to decarbonisation, working in tandem to finance their GHG emissions reduction efforts and renewable energy projects. We project an observable decline in financed emissions in 2023 as key clients strategically decarbonise their portfolios,” said the bank.
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UOB stated that current decarbonisation pathways for the oil and gas sector are “not realistic” in reflecting critical aspects of a just transition. While it has committed to end financing for upstream projects and exit thermal coal financing by 2039, no targets were set for downstream activities.
Nonetheless, UOB said that it will focus on “limiting the supply of fossil fuels to the main economy, avoiding an over-abundance of cheap fuels, and supporting an orderly transition, all while balancing this with the need for socio-economic growth in South-east Asia”.
It added that its net-zero commitments have to be grounded in the realities of South-east Asia, which is still largely reliant on fossil fuels even as energy demand is expected to go up. Hence, the bank “takes into consideration the just transition of the region as we continue to support economic growth and improve energy access across the diverse economies in the region”.
The bank, therefore, “remains dedicated to collaborating closely with (its) oil and natural gas clients” to develop low-emission fuel alternatives and adopt emission-reduction technologies.
The real estate sector financed emissions at 82 kgCO2 /m2 was 14 per cent below the reference pathway – the biggest difference among all five sectors. UOB said it was because of new clients with lower emissions intensities as well as existing clients reporting improved emissions intensities. The bank also grew its sustainable finance exposure for the sector by more than 20 per cent year on year.
Reductions in emissions intensities for the steel sector were due to a pivot towards less energy-intensive steel production methods, while an increase in manufacturing and sales of hybrid and electric vehicles contributed to the lower emissions intensity for the automotive sector.
As for construction, UOB said that the decrease in emissions intensities is partly because of better data quality from its clients, as their reported data showed lower emissions intensities than compared with their proxy data.
It added that it will be looking into including Scope 3 emissions – which refers to indirect emissions from a company’s entire value chain – when data becomes available.
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