Regulators, industry groups may need to fill gap left by closure of climate banking alliance, say observers

With the closure of a global climate banking alliance, regulators or industry bodies in Singapore and the region may need to step up to fill the gap, sustainable finance observers told The Business Times.

This could include ensuring that financial institutions meet credible standards when setting net-zero pathways, as well as providing technical support and capacity building for transition planning – functions that the Net-Zero Banking Alliance (NZBA) used to fulfil.

Without the alliance to provide scrutiny, banks themselves must be transparent about their progress, added observers.

The three local banks have said that they remain committed to net-zero targets, in response to queries from BT. However, observers note the risk of a fragmentation of standards, as well as a loss of peer pressure and accountability with the ceasing of NZBA.

Still, with accountability now resting closer to home, this could be an opportunity for the banks and regional financial institutions “to take more direct ownership of their transition journeys, grounded in regional and sectoral realities”, said Professor Johan Sulaeman, director of the Sustainable and Green Finance Institute at the National University of Singapore.

Dr Maria Teresa Punzi, senior research fellow at the Singapore Green Finance Centre at the Singapore Management University, said that Singapore’s banks can now take the lead regionally and show that “integrity, transparency, and regional cooperation can sustain the net-zero journey even without a global alliance”.

Local banks press on with net-zero plans

NZBA was a global coalition of banks committed to aligning their lending and investment portfolios with the Paris Agreement’s goal of keeping global warming below 1.5 degrees Celsius.

DBS was the first bank in Singapore to join, in October 2021. OCBC and UOB joined one year later.

But the alliance was short-lived, shutting just four years after its 2021 launch.

NZBA was already facing a crisis in late 2024, as major banks began leaving over concerns of potentially being slapped with antitrust lawsuits.

The exodus accelerated after US President Donald Trump took office this January, prompting more high-profile departures and casting doubts on the effectiveness of the climate alliance and banks’ commitment to their net-zero pledges.

NZBA tried to remain relevant. Earlier this year, it removed the requirement that all members had to align their portfolios to the 1.5 deg C threshold, and gave them greater flexibility to tweak their decarbonisation targets by market.

However, that wasn’t enough to stop the tide of exits, and the alliance officially shut in October.

Singapore’s three banks said it would be business-as-usual on the decarbonisation front, despite the end of NZBA.

Mike Ng, chief sustainability officer at OCBC, said that the momentum for sustainable finance and decarbonisation in Asia remains strong.

“Our focus remains on actively engaging our clients in their transition journeys and integrating climate considerations into our business decisions, to drive progress towards our net-zero goals,” said Ng.

He added that OCBC will continue to report its decarbonisation progress through transparent and robust disclosures aligned with international standards.

Eric Lim, chief sustainability officer at UOB, said that the bank has stayed pragmatic, even while being guided by science in setting net-zero targets, and adopting internationally recognised climate models.

“When setting our net-zero targets, we considered structural differences across the region, extracting regional pathways for targets that represent fair contributions of our key markets,” he said.

“We believe in a just transition for the region, where decarbonisation must take place while ensuring energy security and socioeconomic equity and equality. This is so that we can help address potential trade-offs with real-life consequences.”

DBS similarly remains committed to supporting clients and ecosystems in the transformation towards a lower-carbon economy, said a spokesperson.

“The bank’s climate strategy remains unchanged and we continue to see strong interest from our clients to engage on business transformation and sustainable finance,” added the spokesperson.

All three banks set net-zero targets between 2022 and 2023, when lenders faced intensifying pressure to curb global warming by reducing the emissions associated with their financing.

Filling the gap

Observers said that without a global body overseeing financial institutions’ net-zero progress, any fragmentation of standards could increase the risk of greenwashing accusations, if banks diverge on their definitions or metrics, or use inconsistent data.

And without a global forum for benchmarking, there is less peer pressure to turn targets into measurable progress – leading to what some have called ‘zombie targets’, said Dr Punzi.

Said Prof Sulaeman: “Global alliances fostered reputational accountability; no bank had wanted to be the laggard, and hence the initial momentum for the NZBA. At this point, momentum could fade as priorities shift away from climate sustainability.”

Observers say regulatory bodies, industry groups or regional coalitions may now have to step up to get more banks to adopt NZBA’s net-zero guidance, so that the region continues to have comprehensive standards.

Transparent reporting is key to ensure that banks’ net-zero plans are credible and that they remain accountable to stakeholders.

Prof Sulaeman suggested that the Monetary Authority of Singapore could consider mandating standardised disclosures on climate transition pathways and climate-related risk management frameworks, including for regional portfolios outside of Singapore.

This would help ensure that decarbonisation remains more than a voluntary exercise, he said.

“Ultimately, regulators need not dictate which green path each bank takes – but they can insist on transparency, comparability, and accountability across the sector.”

At the end of the day, voluntary alliances have limits, said Dr Punzi.

“Credible climate finance depends on regulatory baselines: mandatory financed-emission disclosure, prudential climate-risk supervision, and clear taxonomies for green, transition, and brown activities,” she added.

Regulators and industry groups aside, banks themselves must bear some responsibility and be transparent in their disclosures.

Dr Punzi suggested that they can link executive pay to climate performance; commission third-party assurance; or publish annual transition reports that are honest about progress and setbacks.

“Even without NZBA oversight, accountability is still possible,” she added.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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