United Overseas Bank (UOB) has identified nature-related risks among its portfolio clients in the agricultural production, mining and quarrying, and building construction and development sectors.
Together with clients engaged in waste management and oil and gas exploration and production, these five sub-sectors account for about 20% of UOB’s overall corporate loan book.
According to UOB’s 170-page sustainability report 2024, released March 21, the bank will prioritise the agriculture, metals and mining, and built environment sectors “as they are the most material in terms of portfolio size and potential risk”.
Firms in these sub-sectors are most at risk because they depend on “natural capital”, such as water; and have the most impact on nature, such as emitting pollution, introducing invasive species or changing the use of land, freshwater or oceans.
Nature may sound like a “new topic” in sustainability reporting, but it was actually the “original sustainability topic”, says Eric Lim, chief sustainability officer at UOB. “We actually understood protecting nature way before we talked about CO2, net zero and all that kind of stuff. But with the Paris Agreement [in 2015], net zero and climate became a big topic, and folks thought they forgot about nature.”
Water use is an excellent way to get corporates comfortable with discussing nature, says Lim in a media briefing on March 21. “Water is cross-cutting; every industry generally needs water or suffers the effects of water in one way, shape or form. Too much water, too little water, water of the wrong kind, it all has implications — we see this not only in agriculture, but also in the built environment and in some of the high-tech industries.”
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Climate or nature?
UOB says it has “long been financing” some activities that “preserve or restore nature”. However, they were traditionally classified as “green financing” rather than “nature or nature-related financing”.
UOB estimates that 60% of its sustainable financing portfolio of $58.0 billion as at end-2024 falls within the “climate-nature nexus”. This refers to an overlap between climate and nature, as many climate-focused solutions contribute to the health of nature and biodiversity ecosystems, says UOB.
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“For example, regenerative agricultural practices help mitigate greenhouse gas emissions through carbon sequestration, while also ensuring improved soil health and biodiversity protection,” says the bank.
However, there is currently no standardised nature financing taxonomy that qualifies nature-related activities, notes the bank. Hence, UOB’s assessment was based on whether the activity financed has an impact on the drivers of nature change.
“This categorisation is a beginning point of reference for our nature-climate nexus financing and will guide our support of our customers in capturing more nature opportunities in the future,” reads UOB’s report.
The bank hopes this leads to more deals in the future. Lim says: “As real economy companies start to respond or focus more on nature, of course, if we have the right advisory [and] financing capabilities, we hope to be the bank of choice that can partner them on nature-related financing. So, that’s how it benefits [the bank]. For sure, that’s our great hope.”
Nature-related deals
UOB has yet to issue a sustainability-linked loan (SLL) or sustainability-linked bond specifically tied to nature targets, but the bank has issued use-of-proceeds bonds with nature elements.
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UOB’s competitor, DBS Bank, issued a $400 million SLL to City Developments in mid-2024, with nature conservation targets aligned with the Taskforce on Nature-related Financial Disclosures’ (TNFD) recommendations. The SLL was the first of its kind and incorporates specific performance targets related to biodiversity conservation, waste management and water efficiency.
Lim says sustainability features are just one of the considerations in deal-making. “There are other decisions that determine whether we originate a deal or not. There are pricing considerations, et cetera.”
TNFD adoption
UOB was one of the earliest Singaporean organisations to adopt the TNFD recommendations. It is the first and still the only bank here to do so.
As an early adopter, UOB committed in January 2024 to disclose material nature-related issues to investors and other stakeholders in its annual corporate reporting. UOB’s latest sustainability report contains the bank’s first formal TNFD-aligned, nature-related disclosures.
UOB is the first local bank in Singapore to include nature and biodiversity disclosures in its sustainability report.
“As a commercial bank with the power to mobilise private capital, we seek to play our role in contributing to and supporting activities that align with Kunming-Montreal Global Biodiversity Framework’s vision of halting and reversing biodiversity loss by 2030 and living in harmony with nature by 2050,” reads UOB’s sustainability report.
By issuing nature-related disclosures, Lim hopes UOB can inspire more corporates to follow suit, eventually bringing regulators and policymakers into the picture.
“We’ve got great figures, but what does it mean? This is learning from climate [reporting]. We need to get the concept of nature being this critical part of our value chains to maintain our economies, our communities [and] our societies into the language of government, into the real economy [and] into financiers,” he adds, “so that as an ecosystem, similar to climate, we can all come together to build the right monitoring tools, the right scenarios [and] the right targets. In an aligned manner, we can begin to protect natural capital for the sake of our societies.”
Lim says UOB will launch a paper next month with the Singapore Sustainable Finance Association to “mainstream” the concept of natural capital “so that various ecosystem partners can begin to respond either in terms of building into strategy, building into regulations [and] responding in terms of investments”. The SSFA is an industry body set up in January 2024 by the Monetary Authority of Singapore.
Looking ahead, the bank sees the start of a “multi-year journey” in implementing the TNFD recommendations. “Industry guidance on nature for financial institutions is relatively nascent; assessment models are still being developed and much-needed data are not yet available.”
UOB will “progressively embed nature” in its business strategy and processes. This includes tracking nature financing and setting nature targets “when appropriate industry guidelines and data for these are available”.
Some tasks, however, require an “ecosystem-level response” with more input from other sectors, says Lim. This includes nature scenario analysis, which helps the bank explore the possible consequences of nature loss and climate change.
“Some of this work needs to be done at an industry level, and that will progressively take a bit of time. Certainly, the idea is to get started. The question is, how long will it take? And if you look at the climate journey, we haven’t solved that yet, unfortunately. It requires a bit of courage and resilience to do this work.”
Key stakeholders in Singapore have not yet focused on nature “in a big way”, says Lim. “But we sense from [the] beginning of last year to this year that the conversation is picking up. So my sense is it’s a question of, are you slightly ahead of where the ecosystem begins to respond, or do you respond only when the ecosystem has woken up. So for us, we like to path-find and prepare ourselves for when we know our clients need us.”
Infographic: UOB
