Unrealistic to fully cut financing to coal companies: Singapore banks 

CUTTING all financing for coal companies is unrealistic, said Singapore’s local banks, adding that funding is necessary to ensure the energy transition process is orderly and just.

South-east Asian economies are still very reliant on coal for power generation, and energy demand is projected to increase significantly as the regional economy grows.

The banks were responding to queries from The Business Times in the wake of a report suggesting many of Asia’s largest banks are not doing enough to wean the region off coal, as their financing continues to support coal development either directly or indirectly.

BankTrack – a non-government organisation that tracks the financing activities of banks – said in its report that at least 30 of the largest Asian banks (ex-China) have not adopted coal restrictions in their landing policies, or have only weak restrictions that are narrowly focused on project finance.

All three Singapore banks, for instance, have some restrictions in coal financing. Yet, these banks continue to have client relationships with major coal developers in South-east Asia.

DBS and OCBC acted as underwriters for a bond issue by Indonesian coal mining company Adaro.

Both banks, along with UOB, also have “strong and close relationships” with other Indonesian coal companies, including Bumi Resources, Bayan Resources and Indika, BankTrack said.

OCBC and DBS are financing nickel company Harita Nickel and its captive coal power plant on Obi Island in Indonesia.

Such relationships help keep these companies funded, BankTrack said.

In response, a UOB spokesperson said credible decarbonisation efforts must factor in economic growth.

“Our commitment to a just transition acknowledges that phasing out oil, gas and coal usage abruptly in the region is not realistic nor feasible, taking into account the current state of economic development and maturity of the energy sector in South-east Asia,” UOB said.

OCBC’s chief sustainability officer Mike Ng said the bank’s net-zero targets for the power sector are developed with the aim to achieve a “delicate balance between ambitious decarbonisation goals aligned with global standards, and ensuring a just transition”.

While the bank has significantly increased its financing of clean energy generation as part of its efforts to transition its clients away from fossil fuels, it cannot ignore the reality that 60 per cent of electricity in Asia is generated from coal, with almost seven million employed in the coal value chain, said Ng.

A DBS spokesperson said the bank seeks to enable a just transition in the region, but added that the transition process is complex “given the Asian context and the imperative to accomplish this in a just manner”.

The “just transition” is a philosophy that advocates for minimising carbon emissions while looking out for the people employed in the fossil fuel sector as well as the community that the sector supports economically.

Industry players continue to debate over what a just transition looks like. Some want to move slowly, arguing that coal dependence is still far too high in this part of the world. Others worry the just transition has become a crutch that prevents banks from being more ambitious in their policies.

BankTrack falls in the latter category, calling the coal financing policies of Singapore’s three local banks insufficient. The evaluation of banks’ coal policies in the report reference a coal policy tracker tool developed by Reclaim Finance – a climate finance non-profit.

All three banks said in 2019 that they will no longer finance new coal-fired power plants, with UOB and DBS aiming to completely exit thermal coal financing by 2039.

Both UOB and OCBC also do not provide new financing to any company in which more than half of its power generation capacity comes from coal-fired power plants. DBS has committed to the same from January 2026.

BankTrack, however, wants the banks to stop lending to coal companies entirely, whether for project financing or general corporate purposes.

“One of the biggest and most common loopholes in coal policies adopted by banks is the continuation of corporate finance: Banks commit not to give any loans for specific coal-fired power projects or mines, but leave open the possibility of corporate finance to the developers of those same projects,” said the report.

“One side effect of a shift towards corporate finance for coal is the increasing opacity of that money. As money is fungible, when it is provided to companies with diverse interests it becomes difficult or impossible to trace how it is spent.”

However, banks may find BankTrack’s position tough to adopt.

Kurt Metzger, energy transition director at corporate advisory Asia Research & Engagement, said banks need to help coal companies transition, and then cut ties with those companies that do not cooperate.

The banks are responsible for engaging with coal companies to develop realistic transition plans aligned with the Paris Agreement and the climate targets of the countries where the companies operate, he said.

“The focus should not only be on prohibiting new coal projects but on actively tracking and supporting alignment with decarbonisation goals,” he added.

Concerns about negative consequences from the phase-out of coal, meanwhile, are best addressed by philanthropic funds, governmental organisations and developmental banks, Metzger said.

Ulf Erlandsson, chief executive officer of Anthropocene Fixed Income Institute, a climate finance non-profit, said banks should be transparent about what they are doing and how they are contributing to global decarbonisation.

A bank that still finances coal, whether through project financing or general financing, should disclose its strategy to decrease emissions as well as the expected effects of that strategy on clients.

Few banks work in a vacuum, he added, and many would have funding relationships with other institutions that do have broader remits and responsibilities on climate.

Said Erlandsson: “Those stakeholders should assess whether these local banks are allocating funding in a way that undermines global efforts to address emissions.”