ESG investing accelerates

Roundtable panellists:

• Jean Chia, chief investment officer and head of portfolio management & research office, Bank of Singapore

• Bertram Lai, group head, research and ESG, CGS-CIMB Securities

• Helge Muenkel, chief sustainability officer at DBS Bank

• Tan Jenn-Hui, global head of stewardship and sustainable investing, Fidelity International

• Desmond Kuek, UBS head of sustainable finance Asia-Pacific and global head of sustainable finance group

• Thio Boon Kiat, group chief executive officer, UOBAM

• Moderator: Lilian Ang, The Business Times

BT: What key trends do you see dominating the sustainability agenda as investor interest in Environmental, Social, and Governance (ESG) themes gain momentum? 

Desmond Kuek:  Going forward, we expect energy security, food security, cybersecurity and climate security to dominate the sustainability agenda.

In our view, the fundamental factors fuelling the shift towards decarbonisation remain intact, and we recommend that investors continue to take a longer-term view on energy transition and sustainability more broadly.

We believe the road to net-zero car­bon will benefit areas like green tech, clean air and carbon reduction, as well as energy efficiency. Meanwhile, companies that outperform in energy cost management and climate resilience would be rewarded.

Here in Asia, we continue to see green tech investment opportunities in select China and Japan companies, particularly in renewable energy, transport, batteries, hydrogen, digitalisation, and energy efficiency.

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Companies are increasingly investing in new technologies. This is exacerbated by the prospect of ongoing high prices for fossil-fuel-based energy, which further raises the economic attractiveness of green projects.

In the renewable energy space, solar and wind are expected to attract the most attention from governments across the region. In fact, Asia-Pacific (Apac) is likely to  be one of the biggest, if not the biggest, offshore wind market by 2030, with the top markets in China, South Korea, Japan, and Vietnam.

Already today, China is leading in the renewables production space and will accelerate its transition away from traditional fuels as the country aims to reach peak emissions before 2030 and net-zero emissions by 2060.

The other area would be food security (agricultural yield, food revolution). We expect production of key crops in Ukraine to fall as much as 40 per cent this year, keeping commodity prices higher into 2023 and pushing importers to diversify their sources of supply. Moreover, with curtailed access to fertilizer supply from Russia, we expect farmers to put a greater focus on solutions that maximise yield and lower input use, that is, in seed technology and machinery.

We think fears of future disruptions are likely to incentivise investments in more localised production, including improvements in agricultural yield, food waste reduction, and supply chain efficiency. These elements are key build­ing blocks in our food revolution theme, which focuses on technology along the value chain that reduces the negative impacts of food production and lifts food security.

Cybersecurity: As more data and information are created, the importance of cybersecurity as an aspect of personal, corporate, and national security continues to grow. Strong cyber defence is becoming even more crucial, and stocks linked to this theme have outperformed the global index this year, with the physical war in Ukraine accompanied by fears of a digital war.  We expect increased spending on cybersecurity in the years ahead.

Thio Boon Kiat: We anticipate further policy developments supporting green initiatives such as sustainable financing and the transition towards a lower carbon economy.

Climate change megatrend: As companies start to consider climate-related risks, their business models will transition to include more ESG factors.  In a report published by Bain & Company, Microsoft, and Temasek, an estimated US$2 trillion of infrastructure investment is needed in South-east Asia to make the transition to a green economy over the next decade.

There has been a flurry of policy developments in the region in recent years: from the publication of the first Asean taxonomy draft during COP26, to individual governments setting out their taxonomy standards and climate-related disclosure guidelines.

Regulatory policies which aim to support sustainable transition would benefit pure-play companies, which are those that derive all or most of their revenue from green activities. Companies that have considered climate-related risks and opportunities will also be beneficiaries of these policies. They are better positioned to transition towards a low carbon economy when it comes to climate mitigation and adaptation.

Sustainable transition has far-reaching implications, and it is not limited to carbon intensive sectors such as energy, utilities, materials, and mining. We also expect other sectors such as consumer discretionary and consumer staples to face transition risks due to the changing consumer demands with the growing awareness on topics such as carbon footprint and supply chain issues. Thus, while not immediate, broader parts of the economy will be involved as well.

Sustainable transition includes, but is not limited to, development and implementation of energy efficient technology and products; climate change adaptation infrastructure production;  transmission and distribution of renewables; reshaping of transportation; emergence of sustainable land management and food systems; carbon capture and storage, and hydrogen technology.

Energy transition: With increasing climate awareness and mounting pressure from investor coalitions, activists, and the public, funding for coal projects has been quickly dwindling. Globally, the number of coal projects in development has rapidly fallen over the years from 1,553 gigawatts (GW) in 2015 to 482 GW in 2021.

Since the Paris Agreement in 2015, there has been a strong decline in the number of coal power plant projects – by 76 per cent. Coal is slowly becoming a stranded asset, with 1,175 GW of planned coal-fired power projects cancelled since 2015.

Closer to home, South-east Asian countries continue to largely rely on coal-fired power generation for electricity. However, they have recently been facing mounting pressures to transition away from coal, as the largest financiers of overseas coal-fired power plants such as China, Japan, and South Korea are pledging to end or tighten such financing.

More recently, the Asian Development Bank announced on 7 May 2021 that it will conditionally cease funding of new coal-fired power plants, coal mining, as well as oil and natural gas production and exploration. This comes on the heels of South-east Asian banks, development banks, and export credit agencies pulling away their support from such activities.

Without such support, we see countries within the region having to quickly transition away from coal-fired power generation, and shift towards greener and cleaner alternative energy sources.

Focus on social: A “Just Transition” may become a new sustainable engine of growth in Asia, especially as the Covid-19 pandemic has raised the prominence of social issues such as labour management and inequalities. We have also seen the pursuit of “common prosperity” goals that aim to improve labour practices within the gig economies. We are also seeing that in Asia, outstanding social issues on labour and Covid-19 management, especially for migrant workers, are being flagged.

Companies have not only faced financial losses, but have been slapped with hefty bans, causing a sharp fall in share prices. Some have also faced reputational risk, with suppliers to large companies facing contract terminations over poor labour practices.

Jean Chia: The ongoing market volatility highlights how cracks in geopolitics and macroeconomics can expose vulnerabilities in investment portfolios. Climate change is the “known unknown” which has become a key priority for investors, companies and countries in terms of addressing material risks and capturing opportunities in energy transition. A recently released paper by McKinsey & Company notes that over 25 new ‘green’ unicorns (startup companies that focus on sustainable initiatives with valuations of over US$1 billion) have been created in the past 3 years with a total valuation surpassing US$70 billion. Such rapid growth can be attributed to a transition in public sentiment and fast changing demographics. 

According to global asset management company, Natixis Investment Managers, 78 per cent of millennials use investing as a way of making an impact, with a further 63 per cent going as far as to state that they have a responsibility to help resolve social issues through their investments. 

Three key ESG/ sustainability trends are top of mind:

Shifting government policy: Post COP26 (2021 United Nations Climate Change Conference), the onus is now on individual governments to live up to their stated climate commitments. The groundwork has been laid for regulatory frameworks and environmental standards to reduce greenhouse gas emissions, maximise social benefits from the clean energy transition and develop technologies that support the circular economy.

Power Play - opportunities in energy transition and energy security: The energy crisis triggered by the Russia-Ukraine war has shone a torch on the vulnerability of Europe’s dependency on fossil fuel and natural gas supplies from Russia.

The European Commission’s REPowerEU legislative plan announced in March prioritised the development of alternative energy sources by ramping up the use of renewables by 20 per cent and boosting energy efficiency. This will support future earnings trajectory of companies exposed to the renewable energy sources, energy storage technologies and other supporting infrastructure for renewables.

Globally, higher energy prices, energy security and climate change also incentivise countries around the world to accelerate their build out of renewable energy capacity to diversify energy mix and reduce vulnerabilities to energy supply disruption.

Overall, we see continued broad-based support for the adoption of renewable energy, electric vehicles, carbon capture, and other technologies. This will likely centre on the areas of power generation and transport sectors, which account for approximately 40 per cent and 33 per cent of global carbon emissions respectively.

Sustainable Investing for long-term investors: We view the current energy price volatility as evidence of how investments can be vulnerable to idiosyncratic risks. Hence, resilient portfolios should be constructed based on longer-term priorities of managing climate risks and access to longer-term return drivers. We remain optimistic that sustainable investing will be a key priority for asset owners.  In its 2021 review of global climate and voting trends, proxy advisory firm Institutional Shareholder Services (ISS) noted that shareholder proposals requesting for the disclosure of emissions reduction goals have continued to be among the most “prolific” types of climate-related proposals. Hence, with the shifting mindset of discerning investors and capital allocators who discriminate between winners and losers in respective sectors, ESG factors will drive valuation differentials for investments.

Tan Jenn-Hui:  For investors focused on sustainability, 2021 was a year dominated by the run-up to and takeaways from COP26 climate change negotiations in Glasgow, Scotland. As an investor in companies across the region and globally, we see ESG considerations continue to rise in importance, both within companies themselves and with the financial community. According to Fidelity’s Analyst Survey 2022, 72 per cent of our analysts report a growing ESG emphasis at the majority of the companies they speak to, the biggest improvements coming from Asia. This is very encouraging, as we see significant potential for sustainable change in this part of the world. As part of our ESG outlook, we’re closely watching 3 key themes: Ending deforestation as one of the simplest and most effective ways of removing carbon from the atmosphere while supporting the food security, jobs and livelihoods of many millions of people across the world; working closely with developing economies in the drive to net-zero, so they are not prevented from developing in the way rich countries have over the past decades; and the principle of ‘double materiality’ where we don’t just focus on the direct impact of companies’ operations, but we consider the actual impact they have on people and the planet.

Bertram Lai: As investor interest in ESG themes peak, some of the key trends we see that might dominate the sustainability agenda are as follows :

Greater transparency in ESG investing – Our research has shown that investors across all asset classes are more than willing to park their monies in companies with excellent ESG ratings and/ or scoring. Trust is fundamental to everything we do at CGS-CIMB. Dedicated to helping investors make better financial decisions, we have introduced a special column in all our reports called ‘ESG in a nutshell’. This special column covers a holistic rubric in relation to sustainability, including ESG risks, forward-looking performances and the adoption of ESG in cash flow forecasts, as well as targeted valuation metrics. This move to incorporate ESG Scoring across all our research reports is timely as it comes at a time when the EU has adopted the proposed new IFRS Sustainable Disclosure Rules.

Greater scrutiny on ESG bonds – Along with greater transparency in ESG investing comes the need for greater scrutiny from both investors and regulators on ESG bonds. Companies that claim to issue green bonds open themselves to higher levels of scrutiny in order to back up the bonds’ ESG label and explain how they complement the organisation’s values, culture and the wider community.

Move to decarbonise – The urgency to tackle climate change has been more pronounced in recent years. As more and more companies move in to join the net-zero emissions pledge, investors are also pledging to reduce carbon emissions in their portfolios.

Helge Muenkel: ESG investing has grown to join the cores of mainstream investment principles. According to Bloomberg, global ESG assets are on track to exceed US$53 trillion by 2025, representing more than a third of the world’s total projected assets under management. Accelerated by the pandemic and green recovery in the US, EU, and China, ESG investing endeavours to quantify costs previously ignored by a world that had been blindsided by top-line growth. Increasingly, the world will need to find a way to create sustainable growth.

The role of businesses in society has also been thrown into the spotlight in recent years, with the degradation of the planet, increasing ideological fractures in society, and a surge in disreputable corporate behaviour. The pandemic has further catalysed consciousness of these issues, accelerating the shift from a shareholder-first to a stakeholder and community-centric mentality. In view of this, ESG investing may perhaps be that once-in-a-generation opportunity to reposition finance and investing as a restorative power to the global economy. More than just generating a fair return, the investor now gets to play a part in caring for the climate, championing social good, and discouraging wayward corporate practices. No matter how small these acts may appear at the outset, their combined impact would reverberate throughout the generations to come.

At DBS, we seek to drive this change by making it easy for our clients to do their part – be it by providing ease of access to ESG investments, or launching platforms such as LiveBetter via our digibank app to empower more sustainable lifestyles, among others. In fact, the growing interest in doing good is manifesting in ways beyond ESG investing – at DBS Private Bank, for example, we’re seeing more clients wanting to give back to the communities in which they live and work in. DBS Private Bank thus works closely with DBS Foundation (which is dedicated to supporting social enterprises in the region) to connect clients to social enterprises, so as to channel funding towards helping these dual bottom-line companies to scale in terms of both growth and positive impact.

We expect these trends to play out even more, moving forward, given the impending intergenerational transfer of wealth to millennial investors, who tend to be more sustainability-conscious compared to their predecessors, and are likely to pave the way for greater change.

BT: What advice do you give investors who are keen on ESG-related themes bearing in mind the lack of consistency in ESG implementation and absence of global standards for ESG rating?

Thio Boon Kiat: Investors need to understand the concept and limitations of ESG ratings. For individuals investing on their own, navigating ESG ratings can be a challenge. ESG scores are not only a metric for sustainability, but they also reflect the resilience and preparedness of a company. This can often be confusing due to the multitude of ESG rating providers and, at times, their conflicting ratings on the same company. Companies’ ESG performance may not be updated by these third-party data providers frequently enough to capture real-time information. However, markets move quickly, and these real-time updates need to be factored into company valuations and research. In Asia, the gap in data coverage for emerging and frontier markets is more apparent. Most companies do not have the resources to provide adequate data or are unclear on the data they have to provide to the third-party data providers. In addition, these providers may not have enough incentives or lack the expertise (for example, language barrier) to provide extensive coverage on these markets.

Investors need to understand what greenwashing is and how to navigate the risks. A way to mitigate the greenwashing risks and to spot truly good companies, is to declutter from the noise. One crucial way is to conduct in-depth due diligence into the companies to understand the business model and its impact. Data do not lie, but data can be misrepresented. It is important to have a framework as a first step to understand the material ESG issues pertinent to companies in each sector. This allows investors to focus on the scope of data that they should look at when assessing the companies. There is a continual effort to standardise ESG-related reporting. Global regulators and standard-setting bodies continue to enhance the robustness of their frameworks and implement systems to deepen the sustainable finance market. The launch of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards (IFRS) provides the foundation to harmonise sustainability reporting standards. This allows companies to be uniformly assessed, enhancing clarity in comparing each company’s policies on mitigating climate and social risks. 

Investors can enlist the help of professional investment managers to inform their decisions. Individual investors can tap professional investment managers to help identify sustainable investment solutions that meet their financial objectives. At UOBAM, with local presence in 9 Asia countries, we are able to conduct a bottom-up approach in engaging the companies.  UOBAM also has a Sustainable Investing Framework with a proprietary materiality map developed by referencing the Sustainability Accounting and Standards Board (SASB) and with assessments that inform our in-house ESG ratings. Where data is not readily available, we leverage our strong regional footprint and dedicated ESG resources to provide in-depth evaluations. In addition, the local teams also conduct company engagements to complement fundamental research to gather deeper insights for investment decision-making. Having a framework that identifies what is material and having  local expertise help us to sieve the wheat from the chaff.

Desmond Kuek: At UBS, our CIO recommends that investors should consider a robust sustainability investment (SI) strategy that would include both quantitative and qualitative analysis of both sustainability and financial drivers. Sustainable investing remains a rapidly evolving field with innovative structures and products as the market continues to grow. UBS offers transparency to investors in SI practices that can help support improved due diligence. In the meantime, we applaud the demonstrable progress in consolidating standards, and continue to emphasise that our recommended approach is a portfolio of diversified SI strategies for improved long term risk return and potential impact alignment.

 Jean Chia: The “alphabet soup” of inconsistent ESG standards has been raised by critics as a reason to deprioritise ESG investing. A November 2021 fact-finding paper by the International Organization of Securities Commissions (IOSCO) highlighted several issues including “little clarity and alignment on definitions, including on what ratings or data products intend to measure”, and as there is “wide divergence within the ESG ratings and data products industry, there is an uneven coverage of products offered, with certain industries or geographies benefitting from more coverage than others”.

However, the study highlighted that “better communication with companies that are the subject of ESG ratings or data products was an area meriting further attention, given the importance of ensuring the ESG ratings or other data products are based on sound Information”. As a rising number of companies hop onto the ESG/sustainability bandwagon to capitalise on the growth in the space, it is unsurprising to see a commensurate increase in “greenwashing”, which can erode investor confidence in the quality and integrity of ESG initiatives by companies and fund managers. To combat this, we see greater governmental intervention, agencies, regulatory and legislative frameworks being formed to protect consumers and retail investors.

While there are significant ESG data gaps (especially in Asia and emerging markets), inconsistencies in ESG implementation and absence of global ESG ratings standards, it is premature to write off the nascent development of ESG investing. The domain will undoubtedly evolve alongside the maturity of participants in the investment ecosystem – from regulators, asset owners, institutional and retail investors. As with the development of international accounting and investment standards, ESG investing frameworks will soon become ubiquitous.

In the meantime, data imperfections can create alpha generation opportunities for investors who exercise investment discipline and rigorous research, based on available data and trend analysis.

Beyond headline data points, investors may also consider relevant key purpose-driven factors when considering an investment:

i) What is the purpose of the investment being made, from the perspectives of both your portfolio and wealth management needs?

ii) What is the purpose of the investment in terms of its likely impact, i.e., what kind of companies will your capital be allocated to and invested in? Are these companies exposed to material environmental risks and will these companies be generating solutions to the world’s greatest challenges and/or be positioned to generate future sources of growth and returns?;

iii) To what extent does your investment strategy meet the above purposes? 

In the absence of perfect data and information, incorporating such questions into the investment process can enhance the construction of forward-looking, long-term portfolios based on client-oriented risk/return objectives. Intentionality towards measurable sustainable outcomes will help investors frame the investment decision on risk-reward of investment solutions.

Tan Jenn-Hui: While there is clearly more to do to establish more globally consistent ESG ratings and frameworks, ESG ratings are already helping to influence positive corporate behaviour by triggering meaningful engagement between investment managers and companies. When ESG ratings are built on the back of a large investment research network with access to senior management, they provide a unique insight into how corporates are performing on ESG-related issues.

At Fidelity, we prioritise ongoing communication with senior leadership teams, working with other stakeholders for maximum impact, and, where necessary, employing the use of proxy voting and shareholder resolutions to improve practices. We are proud of our ESG ratings and scored A+ in all categories assessed by the Principles for Responsible Investment in their most recent assessment.

Bertram Lai: Trust organisations that deliver on their promise.

Helge Muenkel: Today, the universe of sustainable investments in both public and private markets is large, diversified, and growing. These include ESG-thematic products investing into E, S, or G sectors, as well as ESG-integrated products that have strong ESG characteristics and thus boast high ESG ratings.

At DBS, our ESG approach is inclined towards the latter, which integrates ESG as an investment criterion – this refers to using ESG analysis, in addition to traditional financial analysis, to screen investments and arrive at more holistic decisions. So it serves as a risk mitigation tool that contributes to stronger portfolios, since investments with higher ESG ratings are better placed to protect against E, S, and G risks. Studies have also shown that companies with high ESG ratings tend to have stronger financials, a positive association that reinforces the long-term outperformance potential of companies with good ESG characteristics.

It is true that currently there is no single established industry benchmark for rating ESG, which can be confusing for investors. Common benchmarks in ESG criteria or ratings are also key for the industry to implement more systematic exclusion or integration processes when making investment decisions.

While we do see several major ESG rating agencies emerging as potential leaders, and over time, can expect ESG ratings to function similarly to the present credit ratings ecosystem where recognised benchmarks are provided by a few established agencies, we can’t just take a ‘wait and see’ approach till such a benchmark emerges.

As this space continues to iterate and mature over time, it’s best to make the most of existing rating methodologies to enable clients to make informed decisions. This was why DBS stepped up in 2019 to be one of Asia’s first banks to integrate existing rating methodologies – namely MSCI ESG ratings – into our wealth product suite. The aim was to provide greater transparency of our offerings to our wealth clients, and enable them to make more informed and holistic investment decisions from an early stage.

BT:  How have ESG-related assets under management grown in the past year and what are your expectations for the year ahead?

Desmond Kuek: Globally, as at end 2021, our sustainability-focus and impact investments at UBS have increased by 78 per cent, reaching US$251 billion. We also expanded our Climate Aware suite of products, and our Climate Aware assets under management grew to US$23.4 billion. Globally, UBS supported 103 green, social, sustainability or sustainability-linked bond transactions.

In our wealth management business, we have seen strong interest in our flagship sustainable investing cross-asset discretionary mandate. Our flagship sustainable multi-asset portfolios have seen staggering growth to US$5.4 billion (+102 per cent last year) and with almost 1 in 5 clients invested.

Another example is our UBS oncology impact fund which was very well received in Apac. Globally, our clients have invested US$650 million in MPM Capital’s Oncology Impact Fund 2, of which US$250 million came from Asia. This is an impact investing initiative that invests in private and public companies developing innovative treatments for cancer.

We are also encouraged by our wealth management clients’ interest in our latest innovation UBS [My Way].  We have increased sustainability choices to 17 sustainability-focused building blocks (+10 over past year). Seventy per cent of clients actively select SI building blocks for their portfolios.

For our investment bank, last year, our UBS Apac debt capital markets team led 43 transactions, supporting the issuance of more than US$26.6 billion in green and sustainable bonds. And we expect the strong momentum and interest to carry on.

Jean Chia: As at end May 2022, the number of ESG/sustainability-oriented funds available to Bank of Singapore clients has more than doubled compared to end-2020. Based on our proprietary “Shades of Green” framework, approved funds on our platform are tiered into the Emerald, Sage or Garden categories, based on metrics that measure the extent of ESG integration.

As at May 2022, 87 per cent of all mutual funds offered on our platform meet our minimum green criteria. The Discretionary Portfolio Management (DPM) launched the “World ESG Equity mandate” this year to offer wealth management clients a global equity portfolio with an investment approach that incorporates ESG factors as a source of long-term value creation and material risk mitigation.

Thio Boon Kiat: The development and growth in the sustainable finance market will be fast-paced. Sustainable financing will continue to grow in the coming years, with greater allocation of green premium and brown discounts to companies as policies to support low carbon investments and to help companies transition are implemented. The growth of ESG-related assets under management and sustainable fund flows in recent years have been driven by higher investor interest in sustainable investing. We are seeing a rise in investor demand for sustainable funds in Asia. According to Morningstar’s Q1 2022 sustainable fund flows report, sustainable funds in Asia, excluding Japan and China, have received net flows of US$911 million.

We also expect to see a global increase in green bond issuances. Last year, green bond issuances hit a record high of US$269.5 billion, as reported by the Climate Bonds Initiative. This figure is projected to almost double in size to the range of US$400 billion to $450 billion this year. Labelled bond issuance has also grown in recent years and we expect an increasing focus and interest in green, sustainability, sustainability-linked, and – the growing – social bonds as more capital is provided to companies that seek to make change and create a positive impact.

Tan Jenn-Hui: In Singapore, the concept of ESG investing is still relatively young, but its appeal is growing fast. That’s why, over the past few years at Fidelity, we’ve had a big focus on strengthening and integrating ESG considerations into our funds range. Well over half of the 90 funds we offer in Singapore are now classified under Article 8 of the European Sustainable Finance Disclosure Regulation (SFDR), which are funds that promote environmental or social characteristics.

As at the end of 2021, Fidelity manages more than 30 sustainable strategies globally, covering US$15.42 billion of assets under management across assets classes, with more set to launch this year. The number of sustainable funds registered in Singapore alone has also more than doubled, from 6 at the end of 2021 to 13 as of the end of the first quarter 2022.

Bertram Lai: On a macro perspective, the global market for ESG-related assets under management has grown exponentially in the past year; with the creation of 25 new ESG ETFs launched in the region and 31 more listed in the first half of 2021. 

More than US$2 billion flowed into ESG ETFs in the region each year in 2020 and 2019, a jump from US$159.8 million in 2016. Net flows in the first half of 2021 exceeded US$1.7 billion. We expect global ESG assets to surpass the US$41 trillion mark in 2022 with funds rebranded as ESG by asset managers contributing to one-third of the world’s growth. Also, regulation will play a critical role in the scrutiny of green funds to curb greenwashing.

Helge Muenkel: We’re seeing very robust growth on this front, which suggests that our efforts in educating and engaging clients over the years are finally paying off. Take for example our private banking business – last March, they set a goal to have more than 50 per cent of client AUM in sustainable investments (defined as investments rated BBB and above by MSCI ESG ratings) by 2023. By end 2021, 2 years ahead of time, they exceeded this goal with SI AUM at 53 per cent.

We are heartened by these results, and are confident in its momentum as ESG is not a passing fad; rather, it is the future. It is a long-term structural theme, and will fully flourish once given time – especially in Asia, where it’s relatively nascent. Asia’s companies need time to evolve, implement and have their refreshed ESG practices take root. It also takes time for investors to understand ESG, and adjust their mindset and approach to investing. That said, this pace of change has been on the rise amid growing awareness that all stakeholders – be they individual investors, businesses or government bodies – need to play a part in driving collective change.

We are putting our institutional banking and private banking relationship managers (RMs) through ESG-related courses to deepen their knowledge to better advise our clients on sustainable banking options. We also ensure that our private banking RMs proactively review clients’ portfolios and help improve their ESG ratings – for instance, between March and December 2021, around 5,000 of such conversations were held with clients. We also stand committed to spearheading Asia’s ESG agenda, and continue to advocate ESG as a means of augmenting investment analysis and decision-making.

In addition, we have also been supporting efforts to help companies to transition. In October 2021, DBS became the first Singaporean bank, and among the first 100 banks globally, to sign up to the UN-convened Net-Zero Banking Alliance (NZBA), committing to align our lending and financing portfolios with net-zero emissions by 2050.

We’ve been disbursing sustainability-linked loans, working with companies and establishing ESG targets with them. And if they hit these targets, we will give them an improvement in their cost of financing. We need to get to a stage where investors are willing to lower cost of capital if you are doing green initiatives. We have not seen that drop in cost of capital in any meaningful way, even though we are the most focused on sustainability compared to most companies. In 2021, we committed S$12.4 billion of sustainability-linked loans and S$6.9 billion of green loans. This brings us to S$39.4 billion in committed sustainable financing transactions to date, moving us closer to our sustainable financing target of S$50 billion by 2024.

We are also committed to helping SMEs in their sustainability journeys, and have been doing so by leveraging technology for several years. For instance, we have developed digital trade financing solutions that enable SMEs to get access to quicker financing to fund their business and sustainability ambitions, by unlocking the power of technologies such as blockchain to track ESG metrics and credit quality.