Owing to The Edge Singapore’s focus on Singapore-listed companies, much attention is given to our three local banks. Within these pages, long-time shareholders of blue-chip banks DBS Group, United Overseas Bank U11 and Oversea-Chinese Banking Corp have come to expect in-depth coverage and analysis of our financial giants, which have grown beyond our shores.
But Singapore’s role as Southeast Asia’s financial hub will involve more than just its homegrown names. Citi and Standard Chartered (StanChart), for example, joined Singapore’s three local banks as joint bookrunners of the $2.75 billion Green SGS (Infrastructure) Bond in August.
“This was a tremendous achievement with a 50-year tenure for the issuance,” says Freddy Ong, head of client coverage, Singapore, for corporate, commercial and institutional banking at Standard Chartered.
StanChart’s Ong: CCIB Singapore doubled its operating profit y-o-y in 1H2023. Photo: Standard Chartered
From anti-money laundering to sustainable finance, banks are being scrutinised for the projects they put on their lending books. Singapore’s financial regulator is working with regional and international players to advance transition finance — now a key focus area for the Monetary Authority of Singapore (MAS).
Transition finance refers to funding support for businesses and sectors that are not so green, to adopt cleaner technologies, increase energy efficiency and become greener over time, says MAS managing director Ravi Menon at the COP28 Singapore Pavilion on Dec 3.
Citi’s Erasmus: There’s a huge market of opportunity for renewables in Asia, but what I’ve found is that there was a gap in how people were thinking about sustainability and transition. Photo: Citi
But it is a complex issue with no straightforward solutions, says Rapheal Erasmus, Citi’s Asia-Pacific head of sustainability and corporate transitions. “The first thing we need to do is to gather capital where it is needed, and that is something neither the public nor private sector can provide on their own,” she says.
MAS launched on Dec 4 the Transition Credits Coalition, or Traction. Over two years, Traction will study the challenges and propose solutions to scale the early retirement of coal-fired power plants in Asia through “high-integrity transition credits”, says MAS.
See also: A US$12 bil climate fund is readying a rare bond issuance
HSBC’s Tan: Exclusion policies for high-emitting sectors like energy and oil and gas target projects rather than customers. Photo: Albert Chua/The Edge Singapore
The coalition counts Citi, Standard Chartered and HSBC among its nearly 30 members and knowledge partners. “Retiring coal-fired power plants, and hence, increasing our initial exposure to coal-fired power plants, is something that we will definitely look at because there is an endpoint,” says Kelvin Tan, head of sustainable finance and investments for Asean at HSBC. “Actually, by doing this, it will create a positive impact in the future.”
As we enter the new year, The Edge Singapore speaks to the sustainable finance heads at the three global banks — StanChart’s Ong, Citi’s Erasmus and HSBC’s Tan — to learn how they operate.
See also: India aiming to finalise carbon deals with Japan, Singapore
• The Edge Singapore (TES): Tell us about your role and what you do on a daily basis.
StanChart: Most of my time is spent with our people and clients to understand businesses’ pain-points and develop the right solutions.
I spend a lot of my time working with the country management team and the Singapore board of directors to identify opportunities to grow the bank sustainably and value-add for our stakeholders.
In line with the Singapore government’s focus, my priorities include growing the Corporate, Commercial and Institutional Banking (CCIB) Singapore’s income contribution from sustainable finance. Many of our clients say they continue to be on the lookout for green investments and transition finance to meet their net-zero targets and drive more resilient business growth, and that’s where Standard Chartered comes in to support.
Citi: Prior to this role, I was a senior banker in Citi’s Europe, Middle East and Africa (Emea) team covering mostly project finance, infrastructure and renewable financing across Europe. As you can imagine, renewables are a big part of the energy transition, and Europe is clearly very much one of the more advanced economies in the whole development of renewables.
Citi is very much a capital markets-focused bank and we are known to bring the first, biggest and most innovative structured deals to the market. We led and completed the first greenfield project bond in the offshore wind sector, and it really opened up the whole institutional market to offshore wind as an asset class.
Over the past 20 years, Citi has progressively built our understanding of climate-related risks and opportunities. We recognise that to achieve net zero, we also need to support our clients in their own transition to net zero, and so the sustainability and corporate transitions team was formed in 2020 to engage with clients across sectors to provide transition support. The team was then extended to cover the Asia Pacific region in September 2021.
There’s a huge market of opportunity for renewables in Asia, but what I’ve found is that there was a gap in how people were thinking about sustainability and transition. As sustainability is becoming more urgent — as a must-do, not just a nice-to-have — our mandate is to provide advice to our clients and support them through their transition journey.
We work with a lot of corporations across sectors; some of these can be in the high-emitting sectors that need to transition. I also spend time with our public-sector clients, and I draw on my experience from developing the renewable markets in Europe, knowing about financing requirements of institutional monies, and what they need in order to invest. And that’s what I draw on — how they can bring in more private capital into the market to develop renewable energy capacity.
HSBC: I’ve been in banking for a long time in various roles. It all boils down to understanding our clients’ needs. It helps that I’m just not your typical climate scientist who comes to talk about the SBTi (Science Based Targets initiative) or something like that, right? It’s about being able to bridge this together. Obviously, we need the expertise, in terms of looking at all the technical aspects of things, but to understand the clients and also to understand what is required within our own internal policies, and how we bridge that gap, is important.
From a commercial banking point of view, it’s about understanding the overall aspects of our clients’ transition plans, and to see whether that’s aligned with HSBC’s policy and science-based targets. HSBC has committed to be net zero in our financing portfolio by 2050. As an effective commercial banker, it’s understanding that aspect and seeing where our clients are on their journey and how we can support them.
I don’t think at this stage in 2023 that our clients are 100% confident they can reach net zero by 2050, but are they on the right trajectory? Likewise, we’re also learning, so it’s important to talk to clients and understand their pathways.
• TES: How does your bank assess companies’ sustainability goals?
StanChart: As part of our focus on catalysing finance to scale impact, capital and climate solutions where they are needed most, and given Singapore’s growing importance as a key sustainable finance centre, we have a dedicated sustainable and transition finance team in Singapore.
Our team is one of the most well-versed in the market and can help clients from early-stage environmental, social and governance (ESG) strategy and road-mapping, all the way to sustainable trade, cash, and even carbon and transition technologies.
Developments like mandatory climate reporting really help to accelerate our clients in their sustainability journeys as well as the overall market ambitions of sustainable finance. As more clients embark on or improve their climate reporting, there will be an increasing number of organisations that can access the sustainable finance markets and be knowledgeable on where they require support, and that’s where we come in.
We support our clients by advising and financing their decarbonisation and energy transition activities. This includes an extensive suite of sustainable and transition finance solutions, as well as technological expertise on topics such as low-carbon fuels, hydrogen, carbon management, sustainable aviation and shipping, batteries, green steel or aluminium, to name a few. This recognises both the established and emergent technologies that are required to solve the challenges our clients are navigating.
Citi: There are certain key indicators that would be necessary for what we call a credible transition plan. The first is to evaluate if a company has set quantifiable, time-bound interim emission targets in line with their net-zero goals. Ideally, those targets should be science-based, aligned to a 1.5°C pathway, and should encompass the full scope of emissions, Scope 1, 2 and 3.
The second is really around a company’s other sustainability goals. It’s really important as we’re trying to decarbonise that we do not create a negative impact on other aspects of sustainability. The social impact is particularly relevant in Asia, when we’re thinking about the entire energy transition. Asia is much more exposed in terms of gross domestic product, in terms of jobs, to the transition, so we firmly believe that we need to balance and ensure that decarbonisation efforts do not result in negative impacts on low-income communities and developing countries.
The third is to evaluate how a company is implementing their strategy. What are the detailed plans or steps they’ll take? Are their capital expenditure plans aligned with the strategy? And finally, how accountable will a company be to their targets? This could mean having governance structures around the strategy, and robust mechanisms to make sure that they can deliver. Some bigger companies are trying to tie executive compensation to their decarbonisation targets as a long-term incentive plan. So those are elements of a transition plan.
There is no one transition pathway. There are different sectors, industries and even within sectors. If you’re looking at India versus Europe, there will be some differences in terms of how you think about your transition profit and what is possible. So there is no one size fits all, and this is where companies need good advice on how to navigate all of this.
HSBC: We have to be strategic, because HSBC operates in 64 jurisdictions and we have hundreds of thousands of customers. It’s very difficult for us to engage them every single day.
So, we start with the materiality of things, basically the energy and oil and gas industries. Then, we move down to the high-emitters. We work with them to understand their transition pathways, and we make an internal assessment. How would their transition pathway be aligned with our own?
To be honest, for the high-emitting industries, most of them already get it. They know they need to do that; it’s only to what degree they’re at and what stage they’re at. We will work with them to see whether it is credible. If it’s not very credible, then what are the measures that we can take to make it more credible, so that they can reach net zero?
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• TES: Does this influence whether your bank decides to issue loans?
StanChart: At Standard Chartered, we view transition financing as key to our clients’ climate action. As a client-centric bank, we will continue to provide loans based on all the traditional metrics, which now include the climate-related aspects.
Standard Chartered offers services all the way from supporting clients with climate reporting to structuring and incorporating this type of information in the sustainable financing, and ultimately mobilising the various investor and banking bases for such financing.
Citi: In March 2021, Citi pledged to reach net-zero greenhouse gas emissions by 2050, which is inclusive of our own operations by 2030. Last year, we set interim 2030 targets for our energy and power loan portfolios and this year for auto manufacturing, steel, thermal coal mining and commercial real estate sectors.
To set these targets, we have had to understand what our own financed emissions are, as well as setting our baselines for each considered sector. The data is not perfect, but we are very transparent about the work we’re doing around strategy and how we’re thinking about it.
Then, we’ve gone around engaging with our clients on their transition strategy and understanding where they are. It’s very difficult to understand a company’s transition strategy by just reading their disclosures. You have to engage to understand what actions they’re taking, what their pain-points are and their long-term strategy.
We’ve actually set out in our reporting what we call the net-zero review template. We don’t just look at financed emissions, as it’s very much a backward-looking metric with imperfect data. We also look at other indicators like capital expenditure plans, their disclosures including Scope 3, governance, etc. I do think that it’s just a starting point, but that dialogue has to go further than that.
HSBC: I don’t think we are at the stage to say we’re not going to finance any of these high-emitters. There have been policies, for example, that we will not finance new coal power plants and oil and gas exploration. But these are specific policies related to projects rather than to customers. It’s the same for most international banks, even the local banks here.
We don’t actually say we’re going to exit our customers because they are in this industry. However, if the customer, in their transition plan, shows that they have no intention of transitioning, then obviously it begs the question of whether we could continue to support that, mainly because of the transition risk and also the fact that it’s not aligned with our policies.
But suffice to say, at this stage in 2023, we don’t have that many customers who say: “Oh, we’re not going to do anything.”
• TES: What sorts of financing are corporates seeking today? Are sustainability-linked instruments still popular amid higher-for-longer rates?
StanChart: The market is exhibiting increasing sophistication, with growing volumes in issuances and lending in various formats, not limited to green bonds and loans.
The rapid embrace of sustainability-linked bonds (SLBs) and sustainability-linked loans (SLLs) is due in large part to the additional flexibility that they offer borrowers to allocate funds. Given their broad appeal, the sectoral distribution of SLL borrowers is more evenly spread compared with green loans, showcasing their potential to reach hard-to-abate sectors.
Conventional corporates from hard-to-abate sectors that struggle to tap the green use-of-proceeds debt market can leverage sustainability-linked financing structures, and this creates an opportunity for meaningful change.
CCIB Singapore continues to be a core business and a key contributor to both the performance of Standard Chartered in Singapore and the group CCIB business. In 1H2023, CCIB Singapore doubled its operating profit and saw income grow by strong double-digit levels compared to the same period a year ago, partly driven by the interest rate environment but also because we have a clear strategy for broad-based growth.
We supported Wilmar International F34 with a US$200 million ($268.6 million) sustainability-linked trade finance facility [in January], and we provided Seatrium with a US$500 million facility [in October], which includes an innovative sustainability-linked conversion option aligned to the Sustainability-Linked Loan Principles [by the Loan Syndications and Trading Association].
Standard Chartered also played a lead role as structuring bank, sustainability coordinator and hedge coordinator for MISC Bhd in their debut [US$527 million] SLL [in April]. The loan is structured to align with both their long-term business strategy and sustainability aspirations.
Citi: I think it comes down to an understanding of what investors need to invest capital, and also an understanding of how to structure and to de-risk the transaction adequately, to meet both investor requirements and a company’s objectives.
You’ll hear a lot of conversations around blended finance in this region and we have to know how to bring in public-sector investment, multilateral development finance institutions into the capital structure — to mobilise private capital. It needs to be a combination to try to meet the level of funding required.
As a firm, we have a very good understanding of private investors and what private capital needs, but to get private capital to really engage, there needs to be a bankable project on the table, something that they can invest in. Investors are looking at this region and at transition finance with a lot of interest.
But I’ve been doing financing for a long time, and honestly, the devil is always in the details; that’s where you have to spend a lot of time.
HSBC: There was a drop [in sustainability-linked instruments] from 2021 to 2022. I think it’s a combination of two things. One is the rising interest rates. So you will see that generally, the whole debt capital markets had a bit of a slowdown because there was uncertainty in terms of interest rate direction.
The other one is for SLBs. That, in particular, was [due to] the fact that standards had also risen. I think as standards rise, there’s more uncertainty for issuers. They want to take a look at it, to see whether they can meet the standards. For banks, arrangers and all that, [they want] to see what sort of standards they should be imposing to make sure that they are not accused of greenwashing. So, it’s a combination of both.
But I would say that, at the end of the day, SLBs, green bonds and all that will remain very robust; it is something that a lot of people are talking about and it will continue to intensify. It’s about setting the standards, the KPIs — the SPTs [sustainability performance targets], as they call it.
• TES: What are you keeping a lookout for in 2024?
StanChart: By building on our business strategy, I look to further grow CCIB Singapore with my team and colleagues and become a key banking partner for our clients. In the new year, I also look forward to supporting more clients on their sustainability and decarbonisation journey by leveraging our full suite of sustainable finance solutions and working with our advisory and specialist teams to provide the best-aligned solutions for their businesses.
While transition finance is a fast-evolving space, given the policy updates by regulators and clients’ expectations, it is the way forward. We’re committed to reaching net-zero carbon emissions in our own operations by 2025 and in our financing activity by 2050. Transition journeys and activities of our existing and new clients are important in enabling us to meet our targets and in driving necessary change across our markets.
Citi: Our strategy is very much to focus on client engagement, and support them and advise them on how to transition. Companies today face increasing levels of disclosure requirements, partly because of regulations, but actually also because of investor requirements.
In the EU, the Corporate Sustainability Reporting Directive has come into effect since the start of 2023, and will actually have to be imposed in the national law by the EU member states by July 2024. This will require companies to make very detailed disclosures on how sustainability issues impact their business, but also on the concept of double materiality, or how their businesses actually impact people.
This year, we’ve seen the International Sustainability Standards Board issue inaugural disclosure requirements, focused on financial materiality, effective from January 2024. They’re really intended to try to standardise ESG data because one of the biggest complaints of the investing community has been patchy, poor-quality disclosure data.
This means that companies need to get their data right. But if you’re a multinational company, you need to be mindful of how the disclosure requirements can be divergent from region and jurisdiction. How do you report to make sure that you’re compliant in the countries they’re operating in?
I think that there’s going to be much more pressure, which is going to come from the supply chain, having to disclose to your customers, for instance, where your emissions are.
HSBC: To be honest, you know, to reach 1.5°C [limit of global temperature rise above pre-industrial levels], we are actually quite behind. I’m looking forward to more people coming together to come up with a collective solution.
It’s not easy. Collectively, the regulators, the commercial and real economies all need to come together to really understand the issues and prioritise the things that we should do to help reduce climate change.
Another thing that’s fairly new that not many people look at at the moment is adaptation financing. I think in 2024, there’ll be a lot more discussion on adaptation financing, because even if we can achieve 1.5°C, climate change would have [already] occurred. [Even] as we speak now, [it] is occurring. So, how do we help people adapt to changes in the climate? That’s important to think about, especially in these emerging markets.
