"UOB announces water as a crucial factor, becoming the first bank in Singapore to release a report aligned with the Task Force on Nature-related Financial Disclosures (TNFD)"

In a significant stride towards environmental sustainability, United Overseas Bank (UOB) has taken a leading role in Singapore's banking sector, focusing on nature-related disclosures and financing.

Earlier this week, the Science Based Targets Initiative (SBTi) proposed more flexibility for companies in lower-income countries and value chains in setting targets for Scope 3 emissions. This follows the loss of SBTi net-zero target validations for many companies in developing Asia last year. Despite this, Singapore's three major banks, including UOB, have yet to seek SBTi approval for their emissions reduction targets.

UOB, however, has already aligned its sustainability report with the Taskforce on Nature-related Financial Disclosures (TNFD) and has a significant focus on water-related disclosures, given the growing trend amid Asia's data centre boom.

Eric Lim, UOB's chief sustainability officer, emphasised the need for more granular data for nature and biodiversity. He highlighted the key focus areas for UOB in terms of nature-related disclosures, with water being a critical concern. Lim pointed out that building construction and mining activities, which can depend on nature for protection against physical hazards like flood and storms, may potentially pollute water sources through waste disposal and excavation activities.

UOB's sustainable finance portfolio, which stands at S$58 billion (US$44 billion) as of end-December 2024, already embeds nature concepts alongside more mainstream climate considerations. Green loans make up the bulk of UOB's sustainable finance portfolio (55%), followed by sustainability-linked loans (29%) and sustainable trade finance (12%). Transition finance makes up just one per cent of its sustainable finance loan book.

The five sectors identified by UOB with significant dependencies and impact on nature in its loan book are agriculture, metals and mining, built environment, and waste management (excluding oil and gas due to minimal nature dependencies and non-material exposure in the loan book).

Lim noted that unlike their counterparts in North America and Japan with heavy exposure to the US, Singapore banks do not need to de-risk by leaving the Net Zero Banking Alliance (NZBA). He also sees the shift towards more pragmatic discussions on nature as healthy, with a focus on implementing and scaling low-carbon business models that are commercially viable.

In a collaborative effort, UOB is part of an initiative with local banks to develop nature scenarios for the material sectors in its portfolio, led by the Cambridge Institute for Sustainability Leadership (CISL). Outside of UOB in Singapore, the Asian Infrastructure Investment Bank (AIIB) has published a TNFD-supported sustainability report and committed to publishing such reports by 2025.

Lim believes that the industry's efforts to address nature can learn from challenges faced on the climate front. He expects continued momentum around renewables, electric vehicle adoption, and energy efficiency in the built environment across the region. However, he also acknowledged that there is no consistent way in the industry to measure the financial impact of these nature-related risks.

Nature lacks common scenarios that banks can use to engage with clients, unlike how there are 1.5°C or net zero by 2050-aligned scenarios for climate. This highlights the need for continued research and collaboration in the field of nature-related financial disclosures.

As of 2023, environmental reporting non-profit CDP saw that demand for corporate water risks more than doubled compared to the year before. Only eight firms in Singapore have committed to making TNFD-aligned disclosures by 2025. Lim sees this as a positive step towards a more sustainable future for Singapore's banking sector.

In conclusion, UOB's commitment to nature-focused financing and sustainable practices sets a strong example for the banking industry in Singapore and beyond. The bank's approach, which applies a "double materiality" lens to its nature-related disclosures, considering how a company's activities affect the environment and society, is a step towards a more holistic approach to sustainability. As the industry continues to develop localised nature scenarios and address the financial impact of nature-related risks, we can expect to see more progress in the coming years.