We recognise the vital role we play through our financing practices in shaping responsible actions from our customers as we collectively forge a sustainable future. UOB is committed to responsible financing. We expect our customers to share our commitment and have systems in place to manage and to mitigate the Environmental, Social and Governance (ESG) risks in their businesses.
Our approach to ESG risk management
We adopted the principles of the Association of Banks in Singapore (ABS) Guidelines on Responsible Financing in 2016 and continue to enhance our ESG risk management approach as best practices evolve.
Our responsible financing policy applies to all borrowing customers of Group Wholesale Banking and to the Bank's capital market underwriting activities. It is embedded within UOB Group's Corporate Credit Policy, thereby ensuring ESG considerations are integrated into our credit evaluation and approval processes. The policy has clear roles and responsibilities in place to ensure effective implementation through our Three Lines Model control structure.
Under the policy framework, account officers are required to conduct due diligence on all new and existing customers during the customer onboarding process and annual credit review. Customers are assessed for material ESG risks as well as their capacity for, commitment to and track record in sustainability. ESG checklists have been developed to help account officers identify, assess and review ESG risks.
To identify, to measure and to manage better the ESG risks in our portfolio, we classify our customers as "high", "medium" or "low" ESG risk. This is based on the level of ESG risk inherent in their business operations and the residual ESG risk after assessing their ability to mitigate the inherent risk through policies and measures.
Exclusion list and cross-cutting prohibitions
UOB will not knowingly provide financing to companies:
In addition to these cross-cutting prohibitions, sector-specific exclusions are also in place for selected high ESG risk sectors (please refer to our sector-specific policies for further details).
Customers that fall within the following eight ESG-sensitive industries as defined by the ABS Responsible Financing Guidelines are subject to enhanced due diligence with sector-specific guidelines.
Read UOB's Responsible Financing Sector Policies
We notify our customers of their need to adhere to our responsible financing policy and seek their representations and warranties to ensure compliance. All customers are required to comply with local ESG regulations in the countries in which they operate. They are also encouraged to follow established industry standards, to obtain relevant certifications and to adopt best practices pertaining to, for example, proper water and waste management, greenhouse gas emissions and safety management.
Our 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 (IFC) and ABS Haze Diagnostic Kit.
Managing ESG risk in development projects
UOB has adopted the Equator Principles ("EP"), a risk management framework used by financial institutions globally for determining, assessing and managing environmental and social risks in projects. We are committed to meeting the internationally-recognised standard for due diligence and the monitoring of projects in accordance with the relevant requirements, such as the International Finance Corporation (IFC) Performance Standards and the World Bank Group EHS Guidelines.
ESG risk monitoring
ESG risk is monitored at the individual customer as well as the portfolio level. We engage with our customers proactively and continually work with them to improve their ESG practices. Our customers are monitored on an ongoing basis for any adverse ESG-related news. Customers with any known material ESG-related incidents will trigger an immediate review with ESG risks to be addressed and managed appropriately. We require customers to rectify any policy unconformities within a reasonable timeframe and account officers are responsible for monitoring their progress. However, if we deem that our customers are unable or unwilling to commit to managing adequately the potential adverse impact of their operations, we are prepared to review and to reassess the relationship, or reject the transaction.
We regularly report to senior management our exposure to the ESG-sensitive sectors and customers under heightened monitoring due to ESG-related incidents.
We are committed to doing our part in shaping industry developments and actively engage regulators as we collectively work towards a more sustainable financial system. We were closely involved in the co-creation of MAS' Environmental Risk Management Guidelines which aim to enhance financial institutions' resilience to environmental risk, as well as the various workstreams under the MAS Green Finance Industry Taskforce (GFIT). We also regularly engage with other key stakeholders including our customers, colleagues, investors, community and non-governmental organisations to ensure that we meet their evolving expectations and remain abreast of industry developments.
Strengthening ESG capacity is a key area of focus for the bank. All relevant colleagues are trained in responsible financing principles, policies and procedures and have completed the industry-wide e-learning module on responsible financing developed in collaboration with the ABS and WWF. We also actively participate in capacity-building workshops and sustainability forums for knowledge exchange and to deepen understanding of ESG best practices.