At Bank of Singapore (the “Bank”), our approach to sustainability is grounded in our commitment and social responsibility to create long-term value for our clients and other stakeholders.
As a responsible business and steward of assets managed, we play an important role in helping clients allocate capital to achieve returns on their investments.
Environmental issues such as climate change, loss of biodiversity, pollution, and changes in land use, present significant risks to the assets we manage. It is therefore important that we identify and monitor these risks closely so that we can mitigate them for the benefit of our clients, stakeholders and ultimately society at large.
As part of our endeavour to align our process with regulatory expectations and requirements we have started to integrate environmental risk considerations into our investment process, including governance, research, portfolio construction and risk management aspects.
We view sustainability integration as a journey. In charting the path for a sustainable future, we must go beyond the creation of financial value. At Bank of Singapore, we believe that our actions today will define what we stand for in the decades to come.
In response to increased environmental-related risks to investments, the following governance framework is set up to manage sustainable investment in relation to our Discretionary Portfolio Management (DPM) services:
The chart below shows the Bank’s Sustainability Governance Structure.
We expect to continually update our approach to managing and disclosing environmental risk as methodologies for assessing, monitoring, and reporting such risks evolve. Additionally, how we implement relevant regulatory guidelines going forward, will be commensurate with the scale and nature of the Bank’s DPM’s activities and risk profile.
Our strategy for managing environmental risk is conducted with two primary objectives: 1) to seek guidance and align with our parent company, the OCBC Group (“the Group”), where appropriate, and 2) to adopt guidelines and processes at the Bank’s level, specific to our private banking business.
The Bank’s Sustainability Forum coordinates with the Group on the Climate Strategy as per the Sustainability Governance Structure in the OCBC Sustainability Report.
At Bank of Singapore, we believe that aligning the financial markets with sustainable development is vital in support of the United Nations Sustainable Development Goals (SDGs). We aim to provide products and services that help our clients achieve not only their financial goals, but also their aspirations to contribute to a more sustainable world.
Our DPM team employs sustainable investment processes by leveraging the depth of knowledge in the team, a structured approach, and our strength in research. Accordingly, we can apply our conviction in portfolio construction and risk management in a responsible manner.
Depth of Knowledge
We have developed tailored capacity building programs, based on the guidance from the Association of Banks of Singapore (ABS) Handbook and the Institute of Banking and Finance Singapore to develop and grow our specific team functions.
We also actively contribute to shaping the industry by taking part in the development of new sustainable investment guidelines for the private banking industry with industry associations such as ABS and PBIG (Private Banking Industry Group).
We adopt an approach which integrates the consideration of ESG factors into our investment process, including research, portfolio construction and risk management.
We assess ESG risks based on the materiality on companies, sectors and their impact on business models, earnings quality, balance sheet strength and company valuations. This is performed by referencing insights from third party ESG data providers, company disclosures as well as internal research. Where ESG risks are deemed material, such risks are factored into our earnings estimates, cashflow forecasts, as well as potential risk premium and cost of capital adjustments. We also consider broader sustainability themes and trends such as the potential impacts of climate change on selected industries to improve our understanding and ability to incorporate key environmental risk metrics into our research and investment analysis.
Fixed Income Research
For issuers with below average ESG credentials, we conduct more stringent due diligence which typically comprise identifying key factors that have resulted in the initial low ESG assessment. Here, we seek to determine the presence of mitigating factors and assess the impact on other key areas such as business model viability, competitive edge, and quality of governance, among others. All things considered, we will assess the materiality of ESG factors on a company, the extent to which this may lead to the deterioration of credit quality, and whether, such impact has been priced into valuations.
We consider two primary aspects when assessing the fund/manager:
For UCITS funds, we also take into account a fund's classification within the EU Sustainable Finance Disclosure Regulation (SFDR) framework.
Our DPM team strives to add value via security selection and asset allocation as well as to mitigate material risks. Aside from fundamental research, we also embed relevant and material environmental risk considerations in the portfolio construction process.
The potential impact of environmental considerations on investment horizon, fundamentals, and risk/return profile form part of our investment assessment framework. We adopt relevant third-party ESG research and data as part of the decision-making process.
We believe that engagement with investee companies on financially material sustainability issues will have a positive impact on our investment results and on society. We focus on financially material themes as determined by our investment teams, and the outcomes of these engagement efforts are considered by our investment professionals and other relevant stakeholders, enabling them to incorporate this information into their investment decisions, where appropriate.
Sector exposure to ESG risks is incorporated into portfolio reporting cycles for the Bank’s Management review.
For funds which are co-managed by the Bank with an ESG objective, periodic checks are conducted on the funds’ ESG scores to review the scores relative to their benchmarks.
Climate Risk Management
Our risk management process considers material climate risks alongside other financial risks.
Climate scenario analysis is performed to assess climate-related physical risks and transition risks facing our investment portfolios. Our assessment is conducted at security, industry, sector, and country levels. The results of such analysis will be presented to the Bank’s Management for further deliberation.
We consider greenhouse-gas emissions and climate change-related data for our investments.
Such factors form part of our investment analysis when considering climate change.
This data is sourced via our proprietary research on ESG and climate change, as well as third party sources, such as MSCI and Bloomberg.
We believe such information provides insights into a company’s business model and reporting quality. It also enables a performance assessment of Scope 1 GHG emissions and Scope 2 GHG emissions.
We believe that the data currently disclosed by companies does not always adequately reflect a company’s exposure to climate risk, which could materially affect their viability as a going concern or their future financial performance.
Therefore, where necessary, our investment team seeks to consider other qualitative disclosures and risk metrics as part of their understanding of the business model and associated climate-related risks.
Accordingly, we are able to conduct scenario analysis with regard to carbon footprint and climate-change analysis across our investment holdings.
Such analysis allows us to identify a portfolio’s overall carbon footprint and carbon intensity, and highlights high emitting companies, relative to their peers. This allows us to prioritise companies for potential further engagement.
Operational Carbon Footprint
The Bank is implementing initiatives to reduce its carbon footprint.
The section summarises information related to:
The Bank has been reporting Scope 2 GHG emissions together with OCBC since 2019. The consolidated numbers are reflected in OCBC Sustainability Report (page 23). We follow the GHG Protocol for guidance on measuring and reporting of the emissions.
The Bank is committed to reducing the environmental footprint of the physical operations by adopting best practices relating to energy use and waste management. The Bank endeavors to contribute to the Group’s ambition of achieving operational carbon neutrality by 2022, as outlined in OCBC Sustainability Report (page 15).
For electricity consumption, the bank aims to reduce 20% emissions by 2026. To better manage waste, the Bank has a goal of achieving a 6% recycling rate and reducing paper consumption by 5% against the baseline year 2019 and 2021 respectively.
Other key contributions from the Bank in terms of ambition towards carbon neutrality in 2022 are summarised below:
Purchase of carbon credit with DHL to offset emission for overseas courier services.
As guided by TCFD, our DPM team will continue to enhance its structured approach to managing environmental and climate risks.
Our DPM team, in partnership with third party ESG data providers, intends to adopt and develop portfolio risk monitoring tools and processes. The tool will enable calculation of climate value-at-risk (VAR) under different scenarios.
Our research team endeavours to consider broader sustainability themes such as the potential impact of climate change on selected industries and sharpen its focus on material ESG risks. An assessment of these risks could have an impact on our earnings estimates, cashflow forecasts, as well as potential risk premium and cost of capital adjustments.
Our DPM team endeavours to strengthen our investment process by incorporating environmental risks and opportunities identified by our research team and risk management tools. These data will be considered in conjunction with our existing fundamental analysis with the aim of optimising investment outcomes.
Towards a Better Future
Environmental risks pose the greatest existential threat of our time and the road ahead is full of challenges and opportunities. It is imperative for the Bank to take meaningful action to drive a more sustainable path forward and to deliver performance on client investments while considering material ESG goals to ensure a lasting legacy for future generations.