DBS bank and the other two major banks are open to coal phaseout financing. (Photo: DBS)
Recent surveys show that Singapore banks have failed to honor their commitments to stop financing coal-fired power plants. Specifically, DBS Bank, UOB, and OCBC Bank were found to have provided up to $2 billion to the coal industry over the past four years through syndicated loans and capital market issuances. Despite the three banks' March 2024 pledge to support coal phaseout transactions, concerns persist.
Experts are calling on the Singapore government to step up regulatory measures and propose three finance-related strategies to accelerate the phaseout of high-carbon coal power.
Phaseout of coal power is complex, with financial institutions playing a crucial role
Faced with carbon reduction pressures, many financial institutions have clear policies regarding coal investments. Research from Harvard Business School found that if financing for coal-fired power plants comes from banks with coal exit policies, there is a higher chance of decommissioning, which in turn reduces carbon dioxide emissions. The study estimates that similar policies could reduce global carbon emissions by several billion tons.
However, over 50% of Southeast Asia’s electricity comes from coal-fired power, with more than half of the power plants being relatively new and having at least 20 to 30 years of operational life left. This significantly hampers the progress of coal phaseout. Additionally, phasing out coal is not just about providing decommissioning finance to power plants; it also requires ensuring no further support for coal expansion, including stopping financing for developers and bank clients without transition plans.
PLTU Indramayu in Indonesia. Over 50% of Southeast Asia’s electricity comes from coal-fired power. (Photo: Wikimedia Commons)
Experts suggest authorities lead and accelerate the finance industry's role in phasing out coal
Danielle Koh, an analyst from the French nonprofit organization Reclaim Finance, suggests that accelerating the phaseout of coal power could involve requiring bank financing to meet climate criteria. For example, adopting the International Energy Agency’s (IEA) 1-to-6 investment principle, where every dollar invested in fossil fuels must be matched with six dollars in clean energy. She believes that this, combined with mandatory climate financial disclosures, would increase the transparency of coal and fossil fuel financing reports.
Danielle also recommends that the Singapore government develop international standards for coal phaseout financing and sustainable investment. Notably, the Organization for Economic Co-operation and Development (OECD) is expected to propose similar plans at the UN Climate Summit (COP29) in November 2024. For example, regulations for "phaseout emissions" could be introduced for carbon emissions resulting from decommissioning coal power plants to alleviate financial institutions' concerns about increasing carbon emissions.
Additionally, she suggests that policymakers collaborate with private financial institutions to ensure no new coal-fired power plants receive funding while shifting investments to grid infrastructure, renewable energy, and other areas. This move is expected to provide affordable electricity to Southeast Asia and help achieve climate goals.
Source: Eco-business, Still Banking on Coal, Urgewald
