DBS, on Sept 24, announced the launch of a suite of financing and hedging solutions designed to help companies better manage their climate obligations under the European Union Emissions Trading System (EU ETS). This makes DBS the first Southeast Asian-headquartered bank to offer such solutions. The EU ETS, the world’s first carbon emission trading scheme, seeks to encourage the adoption of low-carbon technologies.
Structured by DBS’s emissions reduction business, the solutions provide companies with stable and cost-effective access to emission allowances, known as EU Allowances (EUAs), used in the EU ETS.
DBS’s latest offering provides working capital solutions for clients with EUA inventories and suggests strategies for these companies to manage financial risk associated with EUA inventories.
One of the bank’s clients, Trafigura, received working capital financing from the bank by pledging EUA inventory as collateral in a repurchase agreement. Another client, Ocean Network Express (ONE), made an over-the-counter purchase of EUAs via DBS. The EUAs offset the equivalent of two months’ worth of carbon emissions from ONE’s container vessels and allowed the container firm to hedge against future price volatility by locking in the present market price of EUAs.
“As the pace of decarbonisation continues to accelerate, the trading of emission allowances and voluntary carbon credits will grow in importance. They form part of a toolkit of mechanisms to incentivise businesses to reduce their carbon footprints and adopt cleaner technologies,” says Jacky Tai, group head of trading and structuring, global financial markets at DBS.
“Our emissions reduction business taps the bank’s deep expertise in structuring advanced financial market solutions and applies this to carbon markets like the EU ETS. Our goal is to provide clients with practical solutions which they can leverage to navigate emerging risks and capture opportunities as part of a net-zero future,” he adds.
