Impact of Singapore Bank Loans to Coal Power Projects on Government's Carbon Emission Commitments

7 Asst Prof Mahdev Mohan asked the Prime Minister in light of reports that Singapore banks have provided loans to multiple coal power projects totalling more than US$2 billion over the last five years (a) whether these investments have any impact on the Government's proposed measures to reduce carbon emissions, including that of a carbon tax; and (b) whether the banks will be required or encouraged to make public pledges to restrict lending to such projects.

The Minister for Education (Higher Education and Skills) and Second Minister for Defence (Mr Ong Ye Kung) (for the Prime Minister): Mr Speaker, recent media reports have noted local banks’ financing of coal power projects in the region and asked if this is at odds with the global push to shift to cleaner sources of energy.

The local banks' financing of coal power projects has to be understood, firstly, in the context of rapidly growing energy needs in the region. These increased needs are driven by growing populations, progress in widening people's access to electricity and economic growth.

What this means is that even with countries making full efforts to meet their commitments under the Paris accord, the region's consumption of all fuels will grow. The International Energy Agency (IEA), hence, projects a significant increase in consumption of coal, even as the region increases its use of renewables and lower carbon energies. It also projects that future coal production would be based on newer technologies that reduce coal's carbon emissions.

Secondly, the local banks have been taking steps to make financing practices more environmentally responsible. They have implemented the guidelines on responsible financing issued in 2015 by the Association of Banks in Singapore. They have also identified activities that pose a higher risk to the environment, including coal-powered plants that emit higher carbon emissions, and are taking measures to address the sustainability risks specific to these activities. This includes reviewing their clients' sustainability profiles and working with them to improve their sustainability practices. The local banks are expected to complete the review of their entire customer portfolios by the end of this year.

Further, since 2016, the banks have been disclosing their policies and approaches towards responsible financing in their annual reports and websites. They are on track to fully implement the Singapore Exchange (SGX) sustainability reporting requirements this year.

For example, the Development Bank of Singapore (DBS) has recently pledged that it will stop financing new greenfield coal-fired power generation projects in the Organisation for Economic Cooperation and Development and developed markets. The bank will also cease all project financing of greenfield thermal coal mines.

The Monetary Authority of Singapore (MAS) has also included banks' sustainability practices in its supervisory assessments of banks. This will strengthen our banks’ efforts to integrate sustainability considerations into their core business and risk management processes.

Overall, the measures which local banks are putting in place should contribute to sustainable practices amongst their clients, supporting our efforts in Singapore as well as among our neighbours to meet our targets under the Paris Agreement.

Mr Speaker: Asst Prof Mahdev Mohan.

Asst Prof Mahdev Mohan (Nominated Member): Mr Speaker, I thank the Minister for his comprehensive response. I would like to ask a couple of supplementary questions.

In relation to the DBS climate policy commitment that the Minister mentioned earlier, I do note that while the commitment is for developed countries, DBS has not ruled out financing for new coal-fired power projects in developing countries like Vietnam and Indonesia. These projects would be perhaps the biggest culprits in the region for coal-fired power projects, as well as all the ill-effects that result. So, are there any commitments that MAS will be making or could make to encourage big Singapore banks to look at new methods and perhaps even consider signing up to the Equator Principles on managing Environmental, Social and Governance (ESG) risk?

I understand that MAS has undertaken certain commitments to assess banks' sustainability practices. The banks have undertaken commitments to integrate sustainability considerations. So, why not also consider the Equator Principles?

Mr Ong Ye Kung: The issue is that in developed countries, they have developed power generation to a certain level, and people in rural areas or in the city have access to electricity. In developing countries and emerging economies where many rural areas still do not have access to electricity, coal becomes an option, especially if it is a coal producing country.

So, in that context, we will see plantings next year. If I remember correctly, the IEA report that I read, half the plantings last year are new power generation, half are in renewables, but there are still many others based on fossil fuels. So, there are still such projects, and a lot of the renewables are actually driven by China now. And in developed and developing countries, there are still many power generation projects and greenfield projects that are based on fossil fuels.

As a result, we do see banks pledging to move away from financing coal-powered plants, because the opportunities are in renewables. But at the same time, they also recognise that there are ESG risks in regard to coal power generation plants. So, it is this context that our banks are operating in. Most of their projects are loans, non-bank loans, and as part of syndication loans, where global banks are also participating.

There are many participants in the region where there is still a demand for coal power to help rural communities access electricity. Having said that, I think the situation is evolving. On one hand, as I mentioned earlier in my reply, more steps are being taken for our banks, as well as MAS, to recognise the ESG risks in all these projects.

On the other hand, there are also other steps we are taking to help the industry enhance the entire green finance ecosystem in Singapore. Some of these include, first, pushing for deeper ESG integration in our finance institutions (FIs); second, expanding the breadth and depth of green finance products, foster the growth of even the green asset class in Singapore and in the region; and third, deepening research and development and ESG products, building sustainability skills and capabilities. So, it is really two sides – recognising the risks but, at the same time, building up the ecosystem for green financing.