[HONG KONG] South-east Asia’s largest lender DBS could potentially be financing the decommissioning of steel plants in India and China, said Lim Wee Seng, group head of energy, renewables and infrastructure of the bank’s institutional banking division.
If DBS eventually decides to participate in such transactions, it would be expanding its scope of transition financing to include more assets in hard-to-abate sectors facing the risk of becoming stranded.
Earlier this year, the bank had adjusted its policy to accommodate the financing of the early shutdown of coal-fired power plants, and is already working on a deal in Indonesia.
Similar to the coal power plants in Indonesia, the steel production plants in India and China are also relatively young, and shutting down these plants would be “a big piece” in decarbonising the region, noted Lim, who was speaking on Wednesday (Oct 30) as a panellist at a sustainable finance conference in Hong Kong.
These plants typically have a long lifespan of about 40 years or more. However, unlike coal, the technology to replace conventional blast furnaces in steel production is not readily available or cost-competitive.
While banks are under pressure to green their portfolio by reducing their lending to carbon-intensive sectors, there is also growing recognition that companies in carbon-intensive sectors – such as coal and steel – require transition finance to decarbonise their operations.
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“It’s not about greening your portfolio. It’s about greening the economy. So it’s not about investing in the green economy. It’s about investing in greening the economy – huge difference – and decarbonising that,” said Lim.
To this end, Lim said that DBS is already ambitious enough in its plans to support the region’s decarbonisation, considering the constrains the bank operates in.
In addition to the lack of scalable green technologies, a lot of energy transition projects in emerging Asia – which is where DBS mainly operates in – are compounded by political and regulatory risk, he added.
Lim was responding to a question during the panel discussion on whether banks are being ambitious enough on the sustainable financing front, since they typically focus on short-term profit when there are no regulatory requirements to do otherwise.
“I don’t think it’s very fair to say it’s a focus on short-term profit. I think that the stakeholders are beyond the regulators. There is a realisation that the licence you get, as our CEO says, from civil society, is quite key,” Lim added.
Also speaking at the same panel, Valerie Smith, chief sustainability officer of Citi, cautioned about placing too much undue responsibility on banks in facilitating the transition to a low-carbon economy.
“There is consistently this gulf between what external stakeholders, including investors sometimes, believe that the financial sector can do and what banks believe they can do. The truth is probably somewhere in the middle. But it’s been interesting to see, over maybe the past 10 to 15 years, how that expectation gap has sort of grown,” said Smith.
“I think we just need to be very ambitious, but realistic, about the role of the private finance sector. You see… this hope and dream that the finance sector is going to solve climate change in a way that policymakers and governments have not.”
