DBS, OCBC and UOB release study on the financial implications of nature-related risks
The global palm oil industry is worth about US$60 billion (S$76 billion) and is a major global sector. PHOTO: AFP
DBS, OCBC and UOB release study on the financial implications of nature-related risks
SINGAPORE – Three banks in Singapore have released a joint study on how nature-related risks and dependencies can translate into financial impacts such as credit risks.
The study's findings were published in a report on June 26.
DBS, OCBC and UOB, with support from the Monetary Authority of Singapore (MAS), conducted the study in partnership with the University of Cambridge Institute for Sustainability Leadership (CISL).
The 18-month study, which began in January 2024, involved a nature-dependency analysis across the loan portfolios of the three banks.
It had an initial focus on the food and agriculture sector, which accounts for 11 per cent of gross domestic product across South-east Asia and is highly susceptible to climate change and nature-related disruptions.
Using the palm oil sector as a case study, the banks undertook scenario analysis to capture the possible credit impact of nature risks on their customers, such as failing to repay their loans.
The global palm oil industry is worth about US$60 billion (S$76 billion) and is a major global sector. It is concentrated in South-east Asia, primarily in Indonesia and Malaysia which together account for over 85 per cent of the world's palm oil production.
Participants and researchers in the study examined the impact of various hypothetical scenarios, ranging from mild to severe, on palm oil production. Some nature-related risks for palm oil production include ecosystem degradation, water shortages, prolonged droughts and elevated temperatures.
Upstream players were found to be generally more sensitive to the impact of nature-related risks as compared with integrated players – companies that cover the palm oil value chain from planting the trees to refining the oil. Clients with relatively better financial strength were also more resilient to the short-term acute risks.
The study represents an important initial step by the financial sector to raise industry awareness of nature-related risks and build capability to better assess the financial impact of such risks, said the banks and CISL in a joint statement on June 26.
Mr Mike Ng, group chief sustainability officer of OCBC, said: 'In the light of South-east Asia's vulnerability to biodiversity loss and climate change, this is a timely pioneering study.'
Nature-related risks are inherently location-specific, requiring a contextual lens to assess how localised events can translate into material impact for businesses and financial institutions, said Ms Gillian Tan, assistant managing director (development and international) and chief sustainability officer at MAS.
She said: 'This study is a significant contribution to the industry's understanding of the risks facing a sector that is both economically important in this region and key to global supply chains.'
In addition to showing a clear business case for the banks to invest in nature, the study is aimed at encouraging and accelerating assessments of nature-related risks across the financial sector , said the joint statement .
Referring to nature-related risks and opportunities, Mr Eric Lim, chief sustainability officer at UOB, said: 'Through meaningful partnerships and cross-sector collaboration, we aim to catalyse early conversations so that solutions can be unlocked to promote inclusive economic growth while safeguarding the planet for future generations.'
And Mr Helge Muenkel, chief sustainability officer at DBS, said: 'The health of our natural capital – forests, soils, oceans and biodiversity – is intrinsically linked not only to economic development but also to human well-being.
'This is also true across Asia, where communities, livelihoods and food systems are closely intertwined with and dependent on nature.'
The preservation and restoration of nature is not just an environmental and social priority but also a risk and business imperative. Preserving and restoring nature enhances food security, promotes healthier populations and lays the foundation for long-term, inclusive growth, while also protecting financial value, said Mr Muenkel.
'In this context, banks have a vital role to play in addressing the nature crisis, and we see it as an extension to our climate agenda,' he noted.
'Building an understanding of nature-related risks and opportunities across our business is critical to tackling one of the most urgent challenges of our time.'
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