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:

1. Sustainable Investment Framework (SIF): established to enhance the investment activities undertaken by the Bank under its DPM services by integrating the assessment of Environmental, Social and Governance (“ESG”) factors into our investment processes;

    

2. Sustainable Investment Committee: the management body tasked to discuss, review and advise on sustainable investment matters including policies, proposals and procedures which are developed by the business units to comply with the SIF;

    

3. Sustainability Council: subsumed under the Bank’s management committee and delegated by the Bank’s Board of Directors, this is the governing steering committee which ensures a holistic clear line of sight at bank-wide level regarding sustainability matters. Its primary role is to make the most important decisions on the sustainability agenda including, but not limited to, environmental risk management; and

    

4. Sustainability Forum: the central coordination body on sustainability matters for the Bank, which escalates all important sustainability matters to the Sustainability Council.

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 (page 7).

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).

Structured Approach

We adopt an approach which integrates the consideration of ESG factors into our investment process, including research, portfolio construction and risk management.

Equity Research

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

We consider ESG risks by referencing insights from third party ESG data providers and company disclosures. We also consider the potential impacts of climate change on selected industries and assess if environmental challenges may lead to the deterioration of credit quality and whether there are any existing mitigating factors. For companies with relatively higher carbon emissions, we conduct analysis with the support of third party ESG research.

Funds Selection

We consider two primary aspects when assessing the fund/manager:

1. How a fund manager invests – the qualitative assessment of the integration of ESG considerations in a fund manager's philosophy, investment process and team resources, etc; and
2. What the fund invests in – the conduct of portfolio holdings-based analysis based on reliable third party ESG data and the tiering of funds according to BOS’ own Shades of Green approach (Emerald, Sage, Garden) which in turn allows investors to select funds based on their own ESG objectives and aspirations.

For UCITS funds, we also take into account a fund's classification within the EU Sustainable Finance Disclosure Regulation (SFDR) framework.

Portfolio Construction

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 profiles form part of our investment assessment framework. We adopt relevant third party ESG research and data as part of the decision-making process.

Engagement Approach

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.

Climate risk management has become increasingly important due to rapid temperature rise and as extreme weather events increase in intensity. As such, we need to consider our exposures to climate risks and be prepared to proactively assess, manage and mitigate the climate risk.

Partnering with an external data vendor, we collect high quality data on carbon emissions, ESG ratings and climate value at risk. We develop the process to monitor both the climate-related risk and opportunities within our portfolios. Specifically:

1. We conduct quarterly assessments to measure the Climate Value-at-Risk of our investments under different climate-related scenarios. These scenarios analyse the physical and transition risks, and the opportunities that are associated to the investees in our portfolios.
2. We track an environmental risk watchlist to gauge the investees’ contributions to climate change across asset classes. The watchlist includes the changes of ESG ratings and the top contributors of carbon emissions.

The results of the above climate risk monitoring are discussed and analysed along other financial risks, for the team to make appropriate investment decisions.

Investment Considerations

We monitor 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 data vendors.

We believe such information provides useful insights into a company’s business model and reporting quality. It also enables a performance assessment of Scope 1 and 2  greenhouse gas (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 metrics and highlight high emitting companies which allows us to prioritise companies for potential further engagement.

Climate disclosure reports can be made available upon request to clients who hold DPM ESG-aligned mandates.

As guided by Task Force on Climate-Related Financial Disclosures (TCFD), our DPM team will continue to enhance its structured approach to managing environmental and climate risks.

Risk Management

Our DPM team, in partnership with third party ESG data providers, adopts and develops portfolio risk monitoring tools and processes. The tool will enable climate risk analysis at mandate/account level.

Exclusion

Our DPM team is looking to formalise investment exclusions for DPM’s ESG-aligned portfolio.

Research

Our research team endeavors to consider broader sustainability themes in greater depth, such as the potential impact of climate change on selected industries, to sharpen our focus on material ESG risks. Depending on data availability, we could incorporate such environmental risks into our analysis and its impact on the overall fundamentals of the company.

Portfolio Construction

Our DPM team strengthens the 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 material threats and challenges, but also 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.