DBS Group Holdings has revised its transition finance framework, setting out a clearer list of eligible activities that the bank will finance. This allows the bank to more confidently lend to its clients in hard-to-abate sectors in China, India and Indonesia, among others, while helping them decarbonise their emissions-intensive operations.
Transition finance covers a much broader range of industries than green finance and supports companies on their journey toward sustainability, says Shilpa Gulrajani, head of sustainable finance at DBS’s Institutional Banking Group.
This is critical to help high-emitting industries like energy production and transportation decarbonise, she adds, as it “enables infrastructure, ecological systems and communities to adapt to the effects of climate change”.
“The framework describes our expectations on transition plans and the types of financial products available to support them,” says Gulrajani. “It also helps set clearer expectations across the broader ecosystem, including corporates, regulators and investors, to foster a more structured and transparent approach to transition financing.”
According to DBS’s FY2024 sustainability report, released March 6, DBS will take a “multifaceted and holistic view” when deciding whether to issue transition finance.
“Let’s assume that we [are] financing a particular capex or a particular acquisition of technology. We shall be analysing the corporate as a whole in terms of how this financing and this investment is enabling the corporate entity to transition; it cannot be looked at in silo,” says Gulrajani, who joined DBS in October 2024 after more than 20 years at BNP Paribas.
DBS may finance transition activities for particular activities, assets or facilities. The bank may also issue transition finance to entities, such as corporates; or for “enabling activities” that facilitate or support downstream transition.
Still, DBS will be “insisting and ensuring” that clients have “credible” transition plans, says Gulrajani. Some clients have even asked ratings agencies to provide second party opinions (SPOs) on such plans. “They’re getting an independent lens that is reviewing these transition plans, so we also want to be very, very concrete on those areas,” she adds.
See also: Fatigue, anxiety behind shifting jargon in sustainable investing
Evolving landscape
DBS first launched its sustainable and transition finance framework in July 2020. Since then, the sustainability and transition finance landscape has evolved significantly, says Gulrajani, as many regulators and industry bodies have developed their own green and transition finance taxonomies.
In recent years, the International Capital Market Association’s Climate Transition Finance Handbook, the Asean Taxonomy and the Monetary Authority of Singapore’s Singapore-Asia Taxonomy for Sustainable Finance have tried to create guidelines for lenders issuing transition finance.
However, “a lot of these are very geography-specific”, says Gulrajani. “They still do not give you a very broad approach that you can take as a bank in applying it. So, our approach is going to be that when we have a situation at hand, we will clearly have our DBS transition framework being run through that situation. It will keep in mind all of these guidances that are available and that we can link to for keeping things very tight and credible.”
Transition loans and bonds are relatively new additions to the sustainable finance universe. Moody’s, which releases quarterly reports on the labelled bond market, began including global transition bond issuance to its chart of green, social, sustainability and sustainability-linked bonds in 2Q2024.
In 3Q2024, Moody’s said the world’s lenders and sovereigns issued US$129 billion of green bonds, US$37 billion of social bonds, US$41 billion of sustainability bonds, US$6 billion of sustainability-linked bonds and US$3 billion of transition bonds.
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The latter held steady q-o-q as a “niche” segment of the sustainable bond market, notes the ratings firm.
Steel, shipping still not on track
In September 2022, DBS singled out seven sectors from its loan book and announced decarbonisation targets for each of them. In the steel and shipping sectors, however, DBS is still “not on track” with its targets, unlike its progress on the power, oil and gas, real estate, aviation and automotive sectors.
“Steel and shipping are really hard-to-abate sectors,” says Helge Muenkel, DBS’s chief sustainability officer. “There are technologies that allow us to decarbonise, but in some instances, [they are] not yet necessarily commercially viable, so it will take time.”
Separately, DBS says it has reduced its thermal coal exposure by more than 50% to $1.3 billion as at end-2024. This is down from $2.7 billion in 2021, the year it pledged to achieve zero thermal coal exposure by 2039. The bank’s exposure to thermal coal was $1.8 billion at end-2023.
DBS’s sustainable financing commitments, net of repayments, stood at about $89 billion as of end-2024, up 27% y-o-y.
‘Committed’ to climate action
An increasing number of banks around the world have reported “overshoots” with their decarbonisation targets, says Muenkel. On Feb 19, HSBC announced it is postponing its 2030 net-zero target to 2050, citing slow change in the economy.
A week later, Wells Fargo did away with its own plan to eliminate financed emissions by 2050, blaming factors outside the bank’s control. Wells Fargo also abandoned its 2030 sectoral decarbonisation targets, saying: “Many of the conditions necessary to facilitate our clients’ transitions have not occurred.”
Around the new year, the US’s six biggest banks — Goldman Sachs, Morgan Stanley, JPMorgan Chase & Co, Wells Fargo & Co, Citigroup and Bank of America — pulled out of the world’s top climate alliance for the sector within the span of a month.
Still, leaders from all three Singapore-listed banks have said they will remain in the Net-Zero Banking Alliance (NZBA) — DBS included. Muenkel told The Edge Singapore in January that DBS “continuously evaluates our memberships to ensure they align with our values and maximise impact”. “We remain in the NZBA, which serves as a valuable platform for collective action toward achieving net-zero emissions, particularly in an Asian context.”
DBS CEO Piyush Gupta echoes this in his comments from the bank’s latest annual report: “While there have been some setbacks in global climate commitments, DBS remains committed to supporting climate action for a low-carbon and climate-resilient economy.”
Gupta will retire on March 28, passing the reins to current deputy CEO Tan Su Shan, who will lead Southeast Asia’s largest bank by assets.
At the media briefing for DBS’s latest sustainability report, however, Muenkel sounded more concerned. He cites reports indicating that 2024 was the world’s hottest on record, and global temperature rise broke the symbolic 1.5°C threshold for the first time last year.
DBS’s sectoral decarbonisation targets — or “glidepaths” — were set with the 1.5°C goal in mind. “These were the most credible pathways that existed back then,” says Muenkel.
If the world and its banks do away with the 1.5°C goal, DBS may be left in the lurch. “Do we actually still want 1.5°C as the goal? Is this actually achievable?” Muenkel asks. “This doesn’t mean at all that we take the foot off the pedal… but science tells us the 1.5°C window is closing.”
For now, Muenkel sounds a cautious tone. “This doesn’t mean [we get] an ‘out of prison’ card and we all want to decarbonise slower. That’s not what we are saying… But we need to be mindful of the environment we operate in.”
Photos: Albert Chua/The Edge Singapore
Infographics: Moody's, DBS
Read more about the sustainability topics mentioned in this article:
- Singapore’s three banks to remain in climate alliance despite US peers’ exit (January)
- Net-Zero Banking Alliance to explore next steps after member defections (January)
- Fatigue, anxiety behind shifting jargon in sustainable investing (December 2024)
- Labelled bonds on the decline worldwide (December 2024)
- Global sustainable bond issuance down 20% y-o-y in 1H2024, but Moody’s confident of US$1 tril full-year target (July 2024)
- DBS thermal coal exposure down 33% from 2021, 'on track' to green five out of seven sectors: 2023 sustainability report (March 2024)
- Transition finance to gain prominence in 2024 as SLBs face greater scrutiny: Moody's (February 2024)
- MAS launches Singapore-Asia Taxonomy, world's first to include 'transition' category (December 2023)
