Social Responsibility and Sustainability

Responsible Financing

Our Responsible Financing Approach

We recognise that promoting long-term sustainable development is fundamental to our continuing success. In this regard, we are committed to advancing environmental and social progress and to conducting our business in a responsible manner.

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.

ESG Risk Assessment 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.

Transactions with high ESG or reputational risk are escalated to the Reputational Risk Review Group for review and clearance. We review our portfolio’s ESG exposure periodically and report the findings to our Group CEO and Board Risk Management Committee.

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 other industries that 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.

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.

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.

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.

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.