DBS Bank pledged to reduce its exposure to thermal coal to zero by 2039 on Friday (16 April), making it the first lender in Singapore to commit to a timeline for its shift away from the fossil fuel.
The bank said it would cease the onboarding of new customers if more than 25 per cent of their revenue depends on thermal coal, with immediate effect.
From January 2026, DBS will stop financing clients who derive more than 50 per cent of their revenue from thermal coal, except for customers’ non-thermal coal or renewable energy activities.
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Both thresholds will be lowered over time, the bank said, adding that it would disclose its thermal coal exposure annually in its sustainability report to provide transparency on progress made.
Non-thermal coal, also known as metallurgical coal, is used to create coke, a fuel needed for carbon-intensive industrial processes such as iron production and steelmaking.
The announcement comes as banks face growing global pressure to ditch coal, the world’s largest source of human-caused greenhouse gas emissions, amid increasingly dire warnings of climate change.
Data by the Institute for Energy Economics and Financial Analysis (IEEFA) shows more than 150 major global financial institutions had coal exit policies in place as of December 2020.
Tim Buckley, director of energy finance studies, Australasia at the IEEFA, said DBS’s latest coal exit target was the 29th new or improved coal exit policy announced to date in 2021.
But DBS’s latest pledge means it will phase out exposure to thermal coal mining and power both from a project finance and corporate lending perspective, a first in Singapore’s financial services sector, said Julien Vincent, head of Australian finance-focused non-governmental organisation Market Forces.
In December 2020, Malaysia’s CIMB bank unveiled its own plan to reach zero exposure to thermal coal by 2040.
A DBS spokesperson said that at the end of 2020, the bank’s exposure to thermal coal mining and coal-fired power plants stood at SGD 1.48 billion and SGD 1.38 billion, respectively, representing 0.29 per cent and 0.27 per cent of its total exposure. Exposure includes loans extended in the past and yet to be fully repaid.
As part of its efforts to tackle climate change, DBS will also ramp up its support for corporates transitioning towards cleaner technologies, the lender said.
The bank plans to engage with customers to establish low-carbon transition strategies and incorporate emissions reduction targets in sustainability-linked loan structures through its Sustainable and Transition Finance Framework.
In January 2021, DBS raised its sustainable finance target to SGD 50 billion (US$37.4 billion) by 2024. The bank’s lending towards the renewable energy sector stood at SGD 4.2 billion in 2020, up from SGD 2.85 billion in 2019.
Buckley said while DBS’s plans could be more ambitious, the new pledge was “an act of finance industry leadership for Southeast Asia” as it showed the bank was committed to aligning with global decarbonisation efforts.
He said the policy could be implemented faster, the bank’s progress on growing its renewable energy exposure was insufficient, and its commitment to sustainable finance could be bigger.
JPMorgan Chase’s US$2.5 trillion sustainable finance commitment by 2030, for instance, dwarves DBS’s target. Yet JPMorgan Chase has also been ranked as the world’s top supporter of fossil fuels between 2016 and 2020.
“It’s easy to say (DBS) could do better, but this is a significant step forward… A full coal power exposure phase out by 2039 is a clear and solid target,” Buckley said.
He added that the bank has a critical role to play in facilitating clean energy growth in Southeast Asia, a region that has been slow to pivot towards renewables.
DBS is among global firms committed to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which calls for voluntary disclosures around climate-related risks and opportunities.
In 2017, the lender also became a signatory of RE100, a club of businesses committed to sourcing 100 per cent renewable energy.
Vincent said DBS’s new policy was yet another signal that the coal industry’s days were numbered.
But given warnings that the world needs to reach net-zero emissions by 2050 to avert catastrophic heating, DBS’s commitment falls short of what is required, he said.
Market Forces data shows that DBS has been part of at least a dozen coal power and mining ventures in the Philippines, Vietnam, Indonesia and Australia over the last five years.
The most recent deal, signed in 2021, is a refinancing deal for the Loy Yang B coal power plant in Australia. Vincent said the deal was “at odds” with the bank’s new policy because even if its exposure to the asset expired after a few years, it had helped build the project in the first place.
“DBS itself may be able to get thermal coal off its loan book by 2039, but its actions in recent years have enabled new coal power plants that will want to exist well past that date,” he said. The owners of Loy Yang B plan to operate the asset until 2048.
A DBS spokesperson told Eco-Business that the bank’s coal exit timeline had been established based on its existing long-tenor exposure.
She said that Jawa 9 & 10, a controversial coal power project in Indonesia that reached financial close in 2020, represented the bank’s last of its existing commitments. DBS did not respond to further requests for comment on the Loy Yang B venture.
In 2018, the UN’s Intergovernmental Panel on Climate Change examined how rapidly global coal power would need to be phased out to give the world a chance of capping global warming at 1.5 degrees Celsius.
It found this would require a reduction of 59 per cent to 78 per cent below 2010 levels by 2030, before declining to zero.