Banks roped in to fight against haze with new financing guidelines

SINGAPORE — The Association of Banks in Singapore (ABS) today (Oct 8) issued guidelines on responsible financing, roping in lenders here in the fight against the haze as well as other environmental and social challenges.

To help Singapore’s banking sector support sustainable development, the guidelines incorporate environment, social and governance (ESG) criteria into the banks’ risk assessment and lending decision-making process, as well as drive greater transparency and accountability on ESG issues, the ABS said.

The guidelines call on the banks to provide disclosure of senior management’s commitment to responsible financing, integrate governance and build capacity on responsible lending among banking staff through training and seminars.

Banks will share their vision on responsible financing in their annual reports and publish their ESG policy framework in 12 to 18 months’ time. They will also implement robust governance systems by 2017.

Eight banks have expressed their commitment to the efforts, including Singapore’s three local lenders — DBS, UOB and OCBC — and HSBC, Standard Chartered, Citibank, ABN Amro and Deutsche Bank.

The guidelines follow the Transboundary Haze Pollution Act 2014, which came into effect last month. Early this year, the ABS formed a task force together with several banks to develop a set of industry guidelines on responsible financing.

“It is a social issue, a responsible financing issue. And as financiers, we want to be seen to be responsible to the environment, to society and to have good governance,” said ABS director Ong-Ang Ai Boon.

While the guidelines have no legal teeth, she said peer pressure will keep the lenders in line as “no bank would want a reputational risk. Banks are very sensitive to negative reputation”.

On the haze crisis, she said: “There are many stakeholders involved, and banks are important stakeholders as financiers… This set of guidelines is not a silver bullet to solve the haze problem. Many people may think that banks should stop financing companies (that contribute to the haze), but it is not a guarantee for a short-term solution.”

“It is more important for banks to keep on engaging with the agricultural and forestry industries, all these stakeholders on their financing, talk to the management, give them road maps in order to cause them to change their operating patterns,” she added.

Both UOB and DBS said they would reassess banking relationships with clients who do not meet the ESG standards.

“As part of UOB’s credit and risk assessment practice, the bank expects companies to meet prevailing regulatory standards. The companies should ensure that their operations meet key ESG guidelines and standards,” said Mr Frankie Phua, UOB’s managing director of Country and Credit Risk Management.

“If a company is found to have breached the standards, we will reassess the relationship with the client.”

The Monetary Authority of Singapore welcomed the move by ABS.

“The guidelines are a step forward to enhance responsible financing by financial institutions (FIs). FIs have a role to play in supporting efforts to promote sustainable development. MAS will work with ABS to monitor the adoption and implementation of the guidelines,” said an MAS spokesperson.

The Singapore Institute of International Affairs (SIIA) called the ABS move a timely one. “The haze pollution that Singaporeans and many in our neighbouring countries are suffering now is in part due to the availability of easy financing options for plantation groups. The environmental impact of their business practices, for a long time, is rarely a determining factor in the credit approval process.

“Singapore is a major financial hub and our three local banks have high exposure to the palm oil, and pulp and paper sectors. Unchecked expansion in these two sectors has contributed much to the haze problem… Hence, while Singapore is a victim of haze, it is also a key financier of haze. Business cannot remain as usual and we are heartened that ABS is sending the right signal,” SIIA said.