This article first appeared in The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

AMID a challenging economic landscape, OCBC Group is progressing well towards its science-based decarbonisation targets for the power, oil and gas (O&G), real estate, steel, aviation and shipping sectors to achieve net zero in financed emissions by 2050.

In an email interview with The Edge, OCBC Bank (Malaysia) Bhd (OCBC Bank) managing director and head of wholesale banking Jeffrey Teoh Nee Teik explains that working towards the target is a process that has involved defining the scope, calculating emissions baselines, setting strategies for decarbonisation, and finalising targets in collaboration with internal stakeholders, namely the group’s senior management team and Board Sustainability Committee.

OCBC Group, which encompasses the Singa­pore bank’s financial services across Asean, Greater China, the US, the UK and Australia, has since 2019 spoken broadly about its commitment to the global agenda of transitioning to a sustainable, low-carbon world.

In October 2022, OCBC Group was the second Singapore bank, after DBS, to join the Net-Zero Banking Alliance, which was launched by the United Nations Environment Programme Finance Initiative in April 2021.

“Aligned with the aspirations of many of our clients, we believe that supporting the climate transition is crucial in shaping the future. Furthermore, understanding and monitoring climate risks faced by our clients, and helping them succeed in this transition, is in line with our approach to prudent risk management. At OCBC, we see climate action as our responsibility. It is embedded in our purpose,” says Teoh.

To this end, OCBC Group in May this year established four guiding principles for its net zero emissions journey, beginning with the group assessing how it can impact emissions reduction with its clients as well as engage in collaborative decarbonisation efforts.

Secondly, the group seeks “environmentally progressive” clients and, thirdly, aims to shift its portfolio towards a low-carbon economy by directing capital to green activities. Lastly, OCBC Group acknowledges the complexity of operating in diverse markets and has tailored sector-specific decarbonisation strategies based on market variances.

“These principles ensure a focused yet adaptable approach to our net zero goals. In Malaysia, financial institutions and businesses are recognising the importance of addressing physical and transition risks as they transition to a low-carbon economy. The Task Force on Climate-Related Financial Disclosure Application Guide, designed as a set of basic and stretch recommendations to adopt for banks, insurers and takaful operators in Malaysia, is expected to provide greater impetus for change by increasing accountability and transparency through meaningful disclosures,” Teoh says.

Issued by Malaysia’s Joint Committee on Climate Change (JC3), which is co-chaired by representatives from Bank Negara Malaysia and the Securities Commission (SC), with participation from Bursa Malaysia and supporting institutions, the guide aims to facilitate more informed financial and business decision-making in addressing climate-related risks, so that climate risk management can be done in a transparent and consistent manner.

Teoh points out that the JC3 also complements the Climate Change and Principle-based Taxonomy (CCPT) published by the central bank, as well as plans by Bank Negara to conduct climate-related stress tests for the financial sector in 2024.

CCPT provides a framework that facilitates financial and business decision-making in addressing climate-related risks.

“The financial sector plays a critical role in supporting the transition by channelling capital towards activities that support climate and environmental objectives through their green financing, investment and advisory activities. The CCPT provides a framework that facilitates robust and consistent assessments of economic activities and their associated impacts on climate mitigation, adaptation and the transition to low-carbon and/or more sustainable practices,” he says, adding that OCBC Group’s transition to net zero coincides with Malaysia’s pledge to achieve net zero greenhouse gas (GHG) emissions by as early as 2050, as stipulated in the 12th Malaysia Plan 2021-2025.

The Ministry of Finance, in its Economic Outlook Report 2023, published in October 2022, said the National Policy on Climate Change and other relevant policies and measures were formulated to guide the country in navigating the challenges ahead.

It added that Malaysia will develop the long-term low emissions development strategies, which will outline strategies and actions for GHG mitigation, particularly for the nation’s main economic sectors. The report also stated that the National Renewable Energy Policy and Action Plan, which was launched in 2009, has set as its vision to champion renewable energy uptake in Malaysia, and is bolstered by the National Energy Policy 2021-2040, launched in 2022, which aims to continue meeting the nation’s growing energy demand.

It is worth noting that in April 2019, OCBC Group became the first Southeast Asian bank to stop financing new coal-fired power plants.

“Coal-fired power generation presents a particular challenge. The global coal fleet accounted for almost one-third of global CO2 emissions in 2019, and 60% of the fleet could still be operating in 2050. Many of the coal-fired plants are young and have a high environmental impact.

“Wider solutions involve bringing together the power generation industry, financiers, agencies and governments to accelerate our transition away from coal-fired plants by shutting down plants before their retirement dates, while providing solutions that maintain a stable provision of clean power and employment opportunities,” Teoh says.

OCBC Group has also said it will not extend project financing to upstream oil and gas projects that obtained approval for development after 2021, as part of its decarbonisation efforts for this sector. This is in addition to the target of 35% reduction in absolute emissions by 2030 on the sector which the bank has set.

Teoh explains: “Upstream oil and gas and coal mining companies would be most impacted by falling fossil fuel demand as the world transitions away from fossil fuel-based products. Within the upstream O&G sector, borrowers’ positions in the industry cost curve would be a key driver of their business resilience. For coal mining, the transition scenarios assume rapid phasing-out of coal due its high emission intensity.”

In OCBC Group’s 2022 annual report, the bank said its total sustainable financing commitments grew to S$44 billion in 2022, putting the group “on track toward its stated target of S$50 billion by 2025”.

OCBC Group said it funded green buildings and projects that generate clean energy, such as wind and solar farms, which included nearly 70 labelled large sustainable financing transactions, which saw the group advising and participating in the first healthcare social bond and corporate green retail notes issued in Singapore. Meanwhile, the bank’s SME sustainable financing commitments grew more than 50% to over S$3 billion. Its SME Sustainable Finance Framework, first launched in Singapore in 2020, was expanded to Malaysia, Indonesia and Hong Kong.

In engaging with the industry over Malaysia’s net zero goal, OCBC Bank has observed that some companies face barriers implementing environmental, social and corporate governance (ESG) practices, and this is especially true of small and medium enterprises (SMEs), Teoh says.

A lack of financial resources, expertise for ESG initiatives and its requirement compliances are a problem for the group, given the significant investment in financial capital, tools, methodologies and human resources required.

“Apart from that, there is also limited access to data collection systems for SMEs, especially those that wish to embark on their decarbonisation journey. The first step to managing their carbon footprint is to measure their current carbon emissions. Unfortunately, hiring expertise to measure and manage their carbon footprint requires a significant investment,” he says.

On the financing side, Bank Negara had in January 2022 launched its Low Carbon Transition Facility, which provides affordable funding to help SMEs adopt sustainable and low carbon practices in their business operations.

“We support the central bank’s initiative. In addition, OCBC Bank in February inked an agreement to collaborate with Malaysia Green Technology and Climate Change Corporation to promote the Low Carbon Operating System (LCOS), a cloud-based carbon management system that aims to help SMEs to start managing their carbon footprint by measuring their current carbon emission,” says Teoh.

He explains that LCOS will allow businesses to measure their carbon footprint while ensuring that emissions are well managed. By using a report generated by LCOS, companies could take impactful action to mitigate the amount of carbon their operation produced.

“In addition, as a member of the JC3 sub-committee 1 on risk management, we actively engage in industry consultations led by the SME Focus Group to ensure sufficient support and guidance are availed to SMEs in complying with the latest climate-related financial policies and regulations.”

OCBC Group also offers sustainability-linked loans (SLLs) that are designed to support customers on their transition towards net zero. SLLs incentivise the borrower’s achievement of ambitious, predetermined sustainability performance objectives.

“Sustainability-linked loans are designed to grant customers loan interest adjustments by pegging the interest rate of a credit facility to a series of sustainable goals. Under the SLL, we evaluate and incorporate the customer’s sustainability commitment towards decarbonisation into sustainability performance targets (SPTs). With the achievement of pre-determined SPTs, customers will enjoy a lower loan interest.

Ultimately, our goal is to help customers structure suitable targets in their decarbonisation journey,” says Teoh, adding that the SPTs must be “measurable, core to the overall business, externally verifiable and bring impact to the environment”.

“For example, we could set the sustainability targets based on the company’s decarbonisation target, such as reduction in carbon emissions Scopes 1, 2 and 3. Apart from that, we would also look into external ESG rating improvements as sustainability targets, where the rating is externally verified by an ESG certifier,” Teoh says.

OCBC Group’s support for other sustainability-oriented initiatives include encouraging the installation of solar panels on rooftops of buildings, in which the group finances renewable energy projects via both project financing and green loans. In September 2021, OCBC Bank rolled out a residential solar panel financing plan for individuals, which has allowed residential homeowners to apply for either the bank’s solar panel financing plan or easy payment plan, paving the way for quicker access to the benefits that accrue from the move. As the group believes that solar panels can save up to 85% or even more in electricity bills after a one-time installation, OCBC Bank eligible applicants are given the option to have the entire amount required for the solar panels financed.

Meanwhile, where innovation is concerned, OCBC Group in June last year launched its Sustainability Innovation Challenge with the aim of identifying solutions to challenges in food production.

“Partnering with SMEs and start-ups, OCBC Group awarded two companies with funding of up to S$80,000 each to pilot their sustainability solutions with large corporates, supporting their sustainability journey. Through such collaborations, we can better address the challenges in transitioning the agri-food industry to more sustainable practices, improve food security and reduce carbon emissions,” Teoh says.

In facilitating the adoption of electric vehicles, OCBC Group has installed 12 EV charging stations in its commercial buildings and will be installing another 12 stations in the banks’ key buildings, including OCBC Tampines One and OCBC Tampines Two at Bank of Singapore Centre, Singapore, and OCBC Tower in Shanghai, China.

In Malaysia, there are two EV charging stations at the bank’s headquarters, Menara OCBC, in Kuala Lumpur.

“This is part of our commitment to encourage and enable the adoption of EVs by providing charging facilities at major group-owned commercial buildings by 2025,” Teoh says. 

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