Social Responsibility and Sustainability

Responsible and Sustainable Financing

Our Responsible Financing Approach

Our Responsible Financing approach integrates environmental, social and governance (ESG) considerations into our credit and risk evaluation process for our lending practices and capital markets activities.

Specifically, we will not engage in or knowingly finance any activity where there is clear evidence of immitigable adverse impact to the environment, people or communities. At a minimum, we expect our customers to meet all local ESG-related laws and regulations. Beyond that, we seek to positively influence our customers' behaviour by engaging them in further adopting appropriate sustainable practices to meet higher ESG industry expectations over time.

We take a risk-based approach towards managing ESG risk where transactions that carry high ESG risks are subject to enhanced evaluation and approval requirements.

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Our Sustainable Financing Approach

At OCBC, we are committed to developing a comprehensive and innovative range of solutions targeted at promoting sustainable development in key focus industries and ultimately supporting the achievement of our focus SDGs.

Our goal is to double the Sustainable Financing portfolio by 2025 and reduce the financing of coal fired power generation.

  1. Mapletree Commercial Trust's S$670 million green loan
  2. CapitaLand Mall Trust's S$200 million green loan
  3. Edra Solar's RM245 million sustainability sukuk
  4. Sun Venture's S$455 million green loan
  5. Metro Holdings and Evia Real Estate Management's S$296 million green loan
  6. Frasers Logistics & Industrial Trust's A$170 million green loan
  7. 640 MW Yunlin offshore wind farm project in Taiwan
  8. China General Nuclear Power Corporation's EUR500 million green bond
  9. Wilmar International Limited's US$200 million sustainability-linked loan

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ESG Risk Management Framework

Consistent with our overall risk management approach, we manage ESG risks by adopting the Three Lines of Defence model.

The first line consists of ESG risk assessments conducted by our relationship managers on their customers. Our credit approving officers' systematic review of these ESG risk assessments creates a structure of governance and control, which forms the second line of defence. Assurance that this process is effective and complies with regulations and our internal standards is provided by our Group Audit, forming the third line of defence.

Under our credit evaluation process, we conduct ESG risk assessment on borrowers at least once a year throughout the financing tenor. Additional assessments are conducted if and when significant ESG events arise. As part of the assessment, we evaluate our customers' capacity, commitment and track record in managing and mitigating the ESG risks they face in the conduct of their business operations.

These ESG risks may include biodiversity loss, deforestation, water scarcity and pollution. Their pollution prevention measures, relating to air emissions, water effluents and waste, are expected to be adopted in a manner that is consistent with local laws and regulations, at a minimum, as well as applicable international industry standards.

We also take into consideration social issues such as child/forced labour, occupational health and safety as well as any resettlement of affected communities in our assessment. The requirements we have of our borrowers in these areas reference standards and conventions from organisations such as the International Finance Corporation (IFC), United Nations (UN) and International Labour Organisation (ILO).

We assign an ESG risk rating to our borrowers that reflects the extent to which they meet our ESG requirements. We conduct further due diligence and impose time-bound action plans on borrowers who are rated as carrying high or medium ESG risk. In addition, we may impose covenants in our credit facilities that require the borrowers to comply with ESG requirements. If the covenants are breached or our ESG expectations are not met, we will reassess the client relationships, including turning down transactions. As at 31 December 2018, 100% of the applicable borrowers had undergone ESG risk assessment.

Transactions with high ESG or reputational risk are escalated to the Reputational Risk Review Group for review and clearance. In 2018, one transaction was escalated to Reputational Risk Review Group and approved. We review our portfolio's ESG exposure periodically and report the findings to our Group CEO and Board Risk Management Committee.

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Exclusion List and Sector Specific Policies

We have an exclusion list that prohibits the financing of operations that impact United Nations Educational, Scientific and Cultural Organisation (UNESCO) World Heritage Sites, Wetlands of International Importance designated under the Ramsar Convention as well as the trade in wildlife or products under Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), among others.

We have also developed sector-specific policies that apply to agriculture, forestry, energy, and metals and mining which have been identified by the Association of Banks in Singapore (ABS) as carrying elevated ESG risks. For example, we require our borrowers to have policies or procedures against deforestation and to preserve or enhance identified high conservation value areas. The requirements that we have set out under these policies reference IFC Industry Sector Guidelines, as well as relevant standards and conventions from organisations such as the Roundtable Sustainable Palm Oil (RSPO), International Petroleum Industry Environmental Conservation Association (IPIECA), Equator Principles Association and others. In addition, we have referenced ABS Haze Prevention and Fire Risk guidelines, which set out requirements for borrowers including not performing open burning, adherence to local regulations regarding the use of peat and others.

Our goals is to develop policies for the remaining sectors identified as having elevated risks (chemicals, defence, waste management and infrastructure) by 2019. We recognise that environmental sustainability is a journey. These policies are reviewed periodically and are strengthened over time as we continue to work with our customers in their sustainability efforts.

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ESG Resources and Training

We have dedicated resources that focus on the management of ESG risks and the effective application of our ESG policies.

We established a taskforce in 2016 to spearhead the further development and implementation of our Responsible Financing policies. This taskforce, comprising representatives from business units and risk functions across the OCBC Group, meets regularly and shares ESG developments and business implications. We currently have four dedicated ESG specialists which have been appointed to cover both business operations and risk management.

Our Sustainability Council, which is made up of our Group CEO and senior management, identifies, manages and monitors material ESG matters including climate change risks and opportunities. It is also responsible for the development of OCBC's sustainability framework and is updated on ESG developments on a regular basis. On an individual and collective basis, the Council members actively participate in sessions and workshops conducted by non-governmental organisations (NGOs) and regulators on Responsible Financing and other ESG considerations.

Our relationship managers and credit approving officers are trained in the area of Responsible Financing to strengthen their capabilities in assessing ESG issues and risks, and they are updated on developments in OCBC Bank's sectorial policies.

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Engagement with Stakeholders

We regularly engage our key stakeholder groups, as this allows us to deepen our understanding of their concerns.

As part of our ongoing dialogue with our customers, communities, NGOs and regulators, we share our progress on Responsible Financing and exchange views on global sustainable developments. In addition, we participate actively and contribute our feedback at workshops organised by policymakers, think tanks and industry associations. We continue to engage NGOs that share our view that sustainability is an ongoing journey for companies.

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Signatory to United for Wildlife Financial Taskforce

OCBC is a member of the United for Wildlife Financial Taskforce, a leading global effort to combat illegal wildlife trade.

We recognise that the illegal wildlife trade – among the five most lucrative global crimes – has a devastating impact on the dwindling populations of endangered wildlife left in the world. We are committed to ensuring that the Bank does not facilitate or tolerate financial flows derived from the illegal wildlife trade and the corruption associated with it, such as the sale of illegal wildlife products.

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Our Climate Change Statement

Climate change has had a significant impact on our planet. With rising global temperatures leading to shrinking ice sheets, rising sea levels and the increasing prevalence of extreme weather events, it is widely acknowledged that climate change poses the greatest environmental challenge to our society and businesses today.

OCBC recognises that our financial success is intrinsically linked to the overall health of the markets we operate in. We are committed to advancing environmental and social (E&S) progress and to conducting our business in a responsible manner. By doing so, we will be able to support sustainable development in our markets and communities and create long-term value for our stakeholders.

Our Climate Change Statement affirms our support for the Paris Climate Agreement, which aims to keep the increase in global average temperatures to "well below 2℃ above pre-industrial levels". We believe that decarbonisation of the economy must be managed responsibly over time and will adopt a progressive approach to promote the transition to a low-carbon economy. This is aligned with our focus on Sustainable Development Goal 13 of taking urgent action to combat climate change and its impacts.

Our Commitments on Coal Sector Lending

  • We prohibit new corporate financing or project financing of coal-fired power plants in any location, except where there is an existing commitment, effective 16 April 2019.
  • We prohibit new financing of Lignite Coal Mines.

As part of our ESG Risk Assessment Framework, we perform enhanced E&S due diligence on our clients for all energy-related loans, referencing:

(a) International Finance Corporation (IFC) Performance Standards,

(b) Equator Principles (EP),

(c) Local/National laws and regulations.

Under our credit evaluation process, we conduct ESG risk assessment on borrowers at least once a year throughout the financing tenor. Additional assessments are conducted if and when significant ESG events arise. In addition, we may impose covenants in our credit facilities that require the borrowers to comply with ESG requirements. If the covenants are breached or our ESG expectations are not met, we will reassess the client relationships, including turning down transactions.

Increasing Sustainability Financing

We will continue to seek and realise opportunities to partner our clients on sustainability performance-linked loans. By offering reduced interest rates for independently-assessed improvements in their ESG indicators, our clients will be financially incentivised and empowered to find innovative ways to enhance their sustainability performance. On 8 June 2018, we finalised a deal with Wilmar International to peg interest rates on a US$200 million revolving credit facility to its sustainability performance. We are committed to channelling funds to support environmental investments which will in turn spur economic and climate resiliency across our core markets. The green bond market has emerged as an alternative source of funding and a platform to support the financing of qualifying assets/projects that combat climate change and its impacts. These qualifying assets/projects may include renewable energy, energy efficiency, sustainable water and wastewater management, green buildings and others.

Disclosure on Our Climate Change Efforts

OCBC recognises the importance of transparency and believes widespread climate-related disclosures can help drive global transition towards a low-carbon economy. As such, OCBC has publicly confirmed our support for the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). Moving forward, we will continue to work towards implementing the TCFD recommendations and enhancing our climate disclosures.

Moving Forward

Sustainability is a journey and OCBC recognises that more needs to be done to support sustainable development. In line with this approach, we will continue to refine our climate change statement and enhance our responsible financing policies over time. Together with our customers, we will work towards further adopting appropriate sustainable practices and standards laid out by local regulations and to continue to reference international standards and industry best practices.

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