By Owen Poindexter · June 29, 2020
Singapore-based DBS pledged 20 billion Singapore dollars ($14.4 billion) in sustainable investments and released a framework and taxonomy to define metrics and benchmarks for the trillion-dollar sustainable investing sector on Monday.
DBS, an investment bank with SGD 579 billion in total assets, touted the framework and taxonomy as the first to be released by a bank. Its efforts come as ongoing growth in green bonds and other sustainable investments increasingly raise questions about what specific factors make an investment qualify for that label.
"The need for transparency and effective sustainability-related disclosure practices to avoid ‘ESG-washing’ is crucial to growing the sustainability-linked loan market and the practice of linking loan pricing to ESG performance," Michael Wilkins, head of sustainable finance at S&P Global Ratings told GreenBiz media.
DBS aligned its framework and taxonomy with those of the European Union, the International Energy Agency and the Climate Bonds Initiative, an international organization that creates standards, models and reports around green bonds and sustainable investing.
These frameworks contain guidelines for nearly every corner of the economy, from commonly cited climate focuses like energy, infrastructure and transportation to less obvious ones such as textiles, telecommunication and pharmaceuticals.
Cicero, an evaluator of green finance programs, praised DBS’ ambition, but cautioned that some vagaries in its language could allow funding for more carbon-intensive projects.
“Some categories could be better defined and/or have more specific thresholds and targets to promote greater clarity and transparency within the framework. Some project categories, especially with significant involvement of fossil fuels (such as coal, oil & gas and heavy fuel oil) can bear significant risk of lock-in risks. As the project categories are defined in this framework, they allow financing activities which remain carbon-intensive despite mitigation,” Cicero wrote.
DBS, focused primarily on Singapore, Hong Kong, China, India, Indonesia and Taiwan, will use its framework to guide future sustainability focused investments, namely the SGD 10 billion in renewable and clean energy developments, and the same amount in nonrenewable green projects, it pledged on Monday to invest by 2024.
DBS expects these investments to show annual growth in the double digits. Sustainable funds have benefited from growing interest, and performed better than conventional funds in the first quarter of this year, according to Morningstar. Assets managed by 75 ESG funds tracked by Bloomberg grew 34% in 2019 alone.
Financing that is specifically tied to sustainable activity has been driven largely by green bonds, which companies issue to fund environmentally friendly projects, but a new more dynamic vehicle appeared on the scene in 2017: the sustainability-linked loan. These loans tie investment terms to sustainability targets. Both investment types can link to the criteria defined within a framework such as DBS’s.
DBS issued an SGD 700 million sustainability-linked loan to Keppel Infrastructure Trust and Keppel Energy on June 24, and became the sole issuer of the National University of Singapore’s first green bond in May. The bank underwrote SGD 4 billion in green bonds in 2019.