Maintaining a Risk-focused Organisational Culture
Our values drive our conduct and form the bedrock of our risk culture. They are the foundation for the four principles that guide our approach: enforcing robust risk governance; balancing growth with stability; ensuring accountability for all our risk-based decisions and actions; and encouraging awareness, engagement and consistent behaviour in every colleague.
Our comprehensive framework of policies, processes, methodologies and tools helps us identify, measure, monitor and manage material risks and opportunities faced by the Group. Where applicable, an individual’s key performance indicators (KPIs) also include risk control metrics.
Ongoing training reinforces the risk-focused conduct that enables us to earn the trust of our stakeholders over generations. Many of the training programmes are also available online to enable our colleagues to learn and to complete them at their own pace. On average, each colleague across the Group spent 16.1 hours on risk management training. The training topics include:
- anti-money laundering;
- assessing and addressing operational and security risks;
- business ethics;
- core ethics for financial advisers;
- countering the financing of terrorism;
- Fair Dealing;
- financial crime prevention;
- global fraud prevention;
- IT security and cyber risk awareness;
- regulations on short-selling; and
- UK Bribery Act.
The senior management encourages understanding and practice of risk management across the organisation through regular and frequent communication such as face-to-face meetings, discussion groups and internal bulletins. It is also the responsibility of all people managers to set the tone and to promote risk-focused behaviour within their teams.
Just as we are prudent in our business practices to ensure financial stability through credit cycles, we are committed to mitigating ESG risks in our operations. We recognise that we have an important role to play through our business practices in helping our customers make responsible decisions and support sustainable development. The Bank has a dedicated ESG team with clear roles and responsibilities to ensure we implement our ESG strategy and comply with related policies.
In the area of responsible financing, we have integrated the principles of The Association of Banks in Singapore (ABS) Guidelines on Responsible Financing into our business model.
The MEC has oversight of ESG matters including climate change risks and opportunities which may impact our financing activities. The Credit Committee approves our Responsible Financing Policy, which is part of the UOB Group’s Corporate Credit Policy. This ensures that ESG considerations are integrated into our credit evaluation and approval processes. Group Credit is responsible for ensuring that ESG risks are adequately addressed and, where necessary, borrowers or projects with elevated ESG risks are escalated to the Credit Committee for further review and approval. Consistent with UOB’s overall risk management approach, ESG risks are managed through our three Lines of Defence control structure.
Our Responsible Financing Policy applies to all borrowing customers of Group Wholesale Banking and to the Bank’s capital market activities. Under the policy, our account officers are required to conduct due diligence on all new and existing borrowers during the client onboarding process and annual credit review. Borrowers are assessed for material ESG risks as well as their capacity for, commitment to and track record in sustainability. We have also implemented sector-specific Credit Acceptance Guidelines and have ESG checklists in place to help our account officers identify, assess and review ESG risks.
In accordance with the ABS Responsible Financing Guidelines, borrowers are subject to enhanced due diligence with sector-specific guidelines if they fall within the following eight ESG-sensitive industries:
- Metals and Mining
- Waste Management
In 2018, we enhanced our ESG risk classification to identify, to measure and to manage the ESG risks in our portfolio more effectively. Our borrowers are classified as ‘high’, ‘medium’ or ‘low’ risk. This is based on the level of ESG risk inherent in their business operations and the residual ESG risk after taking into consideration their ability to mitigate the inherent risk through policies and measures.
Our Responsible Financing Policy prohibits our financing of companies:
- with operations or projects that threaten the outstanding universal value or special characteristics of UNESCO World Heritage Sites, Ramsar Wetlands, forests of high conservation value or that would impact critical natural habitats significantly;
- involved in animal cruelty and the trade of endangered species as defined by the Convention on International Trade in Endangered Species of Wild Fauna and Flora;
- without measures in place to manage or to mitigate the risk of air, soil and water pollution;
- involved in the exploitation of labour, including forced labour and child labour, based on the International Labour Organisation (ILO) standards;
- in violation of the rights of local or indigenous communities; and
- involved in open burning for land clearance.
These financing prohibitions are cross-cutting commitments that apply to all new and existing clients across sectors and help to bolster our efforts in fostering sustainable development through responsible financing.
We notify our borrowers that they need to adhere to our Responsible Financing Policy and seek their representations and warranties to ensure compliance, including with local ESG regulations in the countries in which they operate. We also encourage them to follow established industry standards, to obtain relevant certifications and to adopt best practices for proper water and waste management, the reduction of greenhouse gas emissions and the management of occupational health and safety risks. The policy references international standards and conventions such as the Roundtable on Sustainable Palm Oil, Forest Stewardship Council, World Heritage Convention, and best industry practices provided by the International Finance Corporation.
We engage with our borrowers proactively and work with them to improve their ESG practices. In addition, we monitor our borrowers on an ongoing basis for any adverse ESG-related news. Any known material ESG-related incident relating to our borrowers will trigger an immediate review with the ESG risks to be addressed and managed appropriately. We require our borrowers to rectify any breach of our policy within a stipulated timeframe with account officers responsible for monitoring their progress. However, if we deem our borrowers unable or unwilling to commit to managing the potential adverse impact of their operations adequately, we are prepared to review and to reassess the relationship, or to reject the transaction.
We review our Responsible Financing Policy periodically in consideration of changing societal and stakeholder expectations.
In 2017, we also incorporated into our policy the requirements of the ABS Haze Diagnostics Kit for the financing of the palm oil, and pulp and paper industries. This reflects our commitment to help address transboundary haze pollution in the region resulting from open burning for land clearance.
In light of the health risks to the community, we have stopped financing asbestos mining and new building projects that use asbestos in the construction process.
We review our portfolio’s ESG exposure periodically. As at 31 December 2018, all applicable borrowers had undergone the ESG risk assessment with relevant risks adequately managed and mitigated, where possible. In the last quarter of 2018, seven borrowers were placed under heightened monitoring due to ESG concerns, two of which were escalated for further review. The Bank had not had a significant concentration in any of the eight ESG-sensitive sectors, which collectively accounted for approximately 10 per cent of our total loan portfolio.
We maintained a strong focus on our capacity-building efforts across the region in 2018 with more than 80 per cent of our colleagues in relevant roles undergoing training on responsible financing. The training programmes enable them to strengthen their awareness of key ESG issues and developments, to keep abreast of changes to the Bank’s Responsible Financing Policy and processes, and to identify and to assess ESG risks more effectively. The ESG Committee, senior management and the Board have also received relevant training and actively participated in sustainability forums and workshops, which enable them to ensure better integration of sustainability considerations into the Bank’s overall strategy.
We are committed to doing our part in driving industry developments. Over the past two years, we have supported ABS and the ASEAN Bankers Association in a number of capacity- building workshops in the region. We are also working closely with ABS and the WWF on an industry-wide e-learning portal on responsible financing, aimed at strengthening the ESG capabilities of banks in Singapore.
The portal is expected to be launched in 2019. Through ABS, we also led efforts among the Singapore banks to incorporate ESG requirements in their loan agreements.
We will continue to engage with regulators and collectively shape a more sustainable financial system. Apart from the regulators, we will also continue to engage with other key stakeholders, including our customers, colleagues, investors, policy makers, the community and non-governmental organisations, to ensure that we keep abreast of industry developments and meet evolving expectations.
Our Approach to the Coal Sector
Combating climate change is one of the key challenges of our generation. We acknowledge the importance of supporting this common goal and seek to manage climate change-related risks while exploring new opportunities with our clients. Climate change transition and opportunities is a material ESG factor for UOB, and is aligned with our support of the United Nations Sustainable Development Goal 13: Climate Action.
UOB prohibits new financing of coal fired power plant projects and has not financed such projects since January 2018. We also prohibit the project financing of greenfield thermal coal mines. Within the thermal coal sector, our financing is limited to mines that have calorific values corresponding to sub-bituminous or higher grade coal. UOB will continue to engage with and support our clients in their transition to lower carbon energy sources.
At UOB, regulatory compliance is a top priority. UOB is committed to complying with applicable laws and regulations in the countries and territories in which we operate. These include requirements relevant to the licensing and conduct of banking or financial businesses, as well as those aimed at preventing financial crimes such as money laundering, financing of terrorism, fraud, tax evasion, bribery and corruption and insider trading.
Group Compliance, an independent function reporting directly to the Group CEO, is responsible for identifying, assessing, monitoring and managing regulatory compliance risks. Group Compliance plays a vital role in promoting a strong compliance culture and ethical conduct across the Group through advisory, active engagement with internal stakeholders and training.
The function also assists Management and the Board in ensuring that the Group's activities are conducted in accordance with laws and regulations through periodic compliance reviews. It also provides regular updates on regulatory trends and developments to Management and the Board. Our Group Compliance function is aligned with the standards and guidance provided in the Basel Committee on Banking Supervision’s “Compliance and the Compliance Function in Banks” paper.
The UOB Group Compliance Charter establishes the basic principles and duties of the Group Compliance function, roles and responsibilities of the internal stakeholders, and the relationship between Group Compliance and its internal stakeholders. Our compliance programmes are also designed and implemented to comply with international standards such as the Volcker Rule, Foreign Account Tax Compliance Act (FATCA) and the Organisation for Economic Co-operation and Development (OECD)’s Common Reporting Standard (CRS).
Economic Value of Our Contributions
UOB is committed to contributing to the region’s progress and growth through the direct and indirect economic value we create for our stakeholders.