The Association of Banks in Singapore (ABS) has launched new sustainable private banking and wealth management guidelines that comprise principles for private banks to integrate sustainability considerations with their business models and practices. The guidelines were developed with the help of technical reports from Worldwide Fund for Nature (Singapore Limited) to comprehensively establish a baseline for sustainability practices in private banking activities, from wealth planning and investments to financing.
- To exclude and avoid sectors, activities or companies from the investment based on criteria such as norms and standards, business conduct or values/ethical principles.
- To include ESG factors or ESG Analysis systematically and explicitly in investment and decision-making to optimize ESG risk management with return expectations.
- Invest in generating positive, measurable social and environmental impact alongside a financial return.
On the same lines, the Private Banking Industry Group (PBIG) sustainability task force launched a new standard industry training benchmark to upskill private banking managers relationship around sustainability. The task force studied 12 sustainable finance technical skills and competencies, recommending the top four as critical for banking:
- Sustainable Investment Management
- Carbon Markets and Decarbonisation strategies management
- Non-financial industry sustainability developments
- Climate change management
Updapt Views:
By framing sustainable investment approaches, Singapore’s new guidelines will promote greater clarity and transparency among private bankers and their clients and increase the interest in sustainable investment of the banking community in Singapore.
One of the global firms conducted an interim ESG assessment for more than 100+ companies about their climate targets to understand and improve the alignment with corporate reporting and better support investor engagement. The collaboration included:
- leading climate research and data organizations
- environment schools, and
- a steering committee, including investor signatories and experts from the investor networks.
- 75% of the 159 companies have set a net zero emissions by 2050 (or sooner) goal that covers, at least, their scope 1 and 2 GHG emissions.
- 92% of the assessed companies have a board-level committee responsible for climate change.
- And most focus companies which are 91%, have committed to the fundamental aspects of the TCFD framework.
Although the majority have set net zero goals, they could look more ambitious and well aligned with the 1.5C, as only 21% and 12% of short and medium-term greenhouse gas reduction targets are set. And only 19% of the focus companies have produced quantified decarbonization strategies. The organization has also identified that only a few companies have explicitly committed to aligning their CAPEX expenditures with long-term GHG goals.
Updapt Views:
Long-term targets are fundamental to a net zero ambition, while corporate decarbonization strategies, including short-medium marks, are a key priority and need broader consideration across sectors. Companies must analyze the outcome while setting climate goals and understand the difference between climate goals and decarbonization strategies.
Munich Re, one of European’s largest insurance companies and the world’s biggest reinsurer, has established a framework or an underwriting guideline for the decarbonization goals of its insurance, reinsurance, and investment activities as in line to reaching net zero emissions by 2050. And such an ambition requires the company to reduce the net greenhouse gas (GHG) emissions of the investment portfolio by 25-29% by 2025 and reduce coal-related exposure in its insurance business by 35%.
As of 1 April 2023, Munich Re will no longer invest in contracts/projects that cover the planning, financing, construction, or operation of any new oil and gas fields, new midstream infrastructure related to oil like storage and transport, and new oil-fired power plants, which have not yet been under construction or operation as of 31 December 2022.
For the same time frame, Munich Re will cease to conduct new direct investments in pureplay Oil & Gas companies. As of 1 January 2025, the company will require a credible commitment to net-zero greenhouse gas emissions by 2050, including corresponding short and mid-term milestones from listed integrated O&G companies with the highest relative and absolute emissions.
Updapt Views:
The continued consumption of coal, oil and gas is driving global warming to dangerous levels. The Fossil fuel industry is not just majorly responsible for greenhouse gas emissions but also air and water pollution. Following Munich Re’s decision, 43 per cent of the global reinsurance market by premiums has restricted cover for oil and gas projects, and one of the primary reasons is that the projects are incompatible with the 1.5C climate pathway.
Task Force on Climate-related Financial Disclosures (TCFD) released a status report this October, which presented data for the fiscal year 2021, looking at the state of climate-related financial disclosures with TCFD-Aligned Reporting by public companies, asset managers and asset owners. The report further reviews TCFD implementation and milestones over five years.
The scope of the review includes financial filings, annual reports, integrated reports, sustainability reports, and other related reports of 1,434 public companies in eight industries (banking, insurance, energy, materials and buildings, transportation, agriculture., food, and forest products, technology and media, and consumer goods.
As per the report, the percentage of companies disclosing TCFD-aligned information is continuously growing, with 40% of average companies, including 43% in energy, and 15% of companies from technology and media, disclosing 11 recommendations of TCFD. And there is an 11% to 23% increase in the regional disclosure, where European stands at 60%, followed by Asia pacific at 36% and 29% for North American companies.
- Disclosure of climate-related information has increased since 2019.
- Reporting on climate-related risks and opportunities is higher than any recommended disclosure.
- Reporting on risk management processes is below average but steadily improving.
- Disclosure of the resilience of the company’s strategies under different climate-related scenarios increased from 6% to 16% over the three years.
- While the levels of disclosure of climate-related metrics and targets are relatively high, growth related to metrics has slowed.
- Governance remains the least disclosed recommendation, and most companies must disclose information on specific scenarios.
- Companies in the technology and Media industry disclose less than other groups reviewed.
- 49% of the companies with a market capitalization greater than $12.2 billion are disclosing information aligning with the TCFD recommendations.
- Over 60% of asset managers and over 75% of asset owners indicated they currently report climate-related information to their clients and beneficiaries, respectively.
Updapt Views:
Based on the TCFD’s latest status release, companies should consider leveraging public disclosures of peers and other types of companies when developing and enhancing their climate-related financial disclosures and effectively engage a wide range of stakeholders across the company to report on the metrics equally.
As a recent announcement, The London Stock Exchange launched its voluntary carbon market (VCM), supporting direct investment on the path to net zero.
With more and more companies pledging to reach net-zero targets and reduce their greenhouse-gas emissions, many businesses need help to eliminate their emissions or even mitigate them within the given period. For the same reasons, it will be necessary to use carbon credits to offset emissions that cannot be reduced. The demand for such carbon credits is increasing and is estimated to be worth $50 billion in 2030.
According to the London Stock Exchange's public market framework, the voluntary market will enable funds and operating companies to raise capital to be channelled into projects that reduce GHG emissions in the atmosphere. Carbon credits are expected to be generated by nature-based and technology-led approaches and designed to support businesses to offset their residual or unavoidable emissions.
Step 1: The entity and its advisors identify projects that will generate carbon credits in line with market rules.
Step 2: The entity is admitted to the London Stock Exchange and applies for the voluntary carbon market designation if the strategy and approach are aligned with the rules.
Step 3: Once admitted, market investors buy shares in the entity.
Step 4: Entity implements projects and provides reporting against defined milestones for credit issuance.
Step 5: Entity issues carbon credits as a dividend ‘in-specie’ to investors or a cash dividend defined at admission.
Step 6: Investors can continue to buy and sell shares.
Updapt Views:
The voluntary carbon markets have evolved rapidly and are now used by both the private and public sectors. Although it is one of the mechanisms to help companies manage currently unavoidable and residual carbon emissions, businesses must equally focus on setting up their direct decarbonisation strategies, work on ESG management. And not just consider the VCM as a substitute for decarbonising the processes but look at it as a speeding path to a low carbon economy.
