MC EXCLUSIVE India is Asia’s 3rd largest, fastest growing market for sustainability finance, says DBS Bank’s Chief sustainability officer Helge Muenkel

Helge Muenkel, Chief Sustainability Officer, DBS Bank

DBS Bank is upbeat about India, particularly on sustainability finance. Speaking to Moneycontrol, DBS’ chief sustainability officer Helge Muenkel said Indian businesses waiting to transition from being fossil fuel guzzlers to green units would be the focus of the Singapore-based bank.

In an interview to Moneycontrol, Muenkel also shared insights into the evolving nature of sustainability finance, which he says is not just about funding the end product but participating in the entire value chain. Edited excerpts of the interview:

How significant is India in terms of the sustainability business?

Sustainability is predominantly wholesale banking and India is our third largest market in Asia. Singapore is the largest followed by Hong Kong. India is also the fastest-growing market. We are very keen and interested in doing more (in India). It’s not just the power sector and supporting renewables and batteries. We’ve done a deal for Tata Communications and Ultratech. It’s across different industries.

For us, it’s very important to drive transition finance. If you look at India overall, it’s like a traffic light system. You have the green business like renewables and then you have the dark brown that’s never going to become green like power generation using thermal coal. Then you have this vast amount in the middle, which is the amber part. It is not yet green, but with the right effort, technology and capital, it could become green. Our job is to help customers that are not yet green to become green over time. We want to finance the dirty stuff under the condition that they have a plan to transition credibly over time.

We are an Asian bank and we understand Asia very well. We want to be the transition bank for Asia. In March, we refreshed our sustainable finance and transition finance framework, which was first published in 2020. We’ve added 30-plus activities to be really all-encompassing and tightened our governance.

Pricing remains a contentious issue in sustainable finance. What is your take?

Sustainability is making us competitive and embracing sustainability is not only about getting a cheaper loan for 20 basis points. The conversations we have with customers are less around 'can I get a 10 basis points cheaper loan' but more about 'what is the transformation of my business'? There are now discussions around carbon pricing and carbon markets in India.

If people embrace climate action and transform their businesses, they are going to be better businesses. It enhances risk-adjusted returns.

Two products are going to be quite instrumental and both are not new – blended finance and carbon markets. The world has struggled to scale these two products. It is fundamentally important to find investors who provide junior capital equity at reasonably low returns such as multilateral development banks, development financial institutions, philanthropic capital and impact investors.

Carbon credits are an extremely intelligent and efficient tool in allocating capital to climate mitigation. The issue is that for two–three years, we were in a state of crisis because people were not sure if a carbon project is delivering on its promise. Now we are getting confidence back into the market slowly. With the new satellite technology and MRV technology (measurement, reporting, verification) we’ve come a long way (on carbon credits). DBS is at the forefront of this (sustainability finance) innovation. We are developing a new financial instrument called transition credits. We are currently working on a pilot project in the Philippines.

The ESG rating model has had a slow start in India. How would you overcome this problem?

ESG ratings is more about risk management and impact (funding) is something else. They are linked and almost like two sides of the same coin. Sustainability is not a new risk category. It's a driver of existing risks. We need to differentiate between risk management and impact.

Climate risk, for example, is not a risk category; it’s a driver of credit risk. On the impact side, the market has evolved quite a lot. You can get data from customers on what’s happening on the ground and assess it over time. Sustainability-related data is still evolving. Over the next few years, as mandatory sustainability disclosures and digital tools become more widespread, the quality and availability of data will continue to improve.

What is the quality of credit in the sustainability book?

Globally, I have not seen any central bank or any bank that is able to credibly and statistically say that the probability of default or the loss given default of a green project is lower, higher, or whatever than others.

They behave the same way?

Honestly, we don’t know yet. We cannot perfectly dissect this. Secondly, it’s not one-directional. For instance, if a company decarbonises superfast, it is good for impact but it might be bad for risk management.

Most customers want a fine balance; they want to decarbonise but if they decarbonise very fast and all the other competitors are not doing it, then there might be a short-term issue around competition.

It is believed that a lot of large banks, like in the US, have a different view on net-zero financing. As Asia’s largest bank, how do you see the environment evolve?

I don’t think anything has changed. Priorities of Net Zero Banking Alliance (NZBA) have evolved. As climate strategies have become more established, the need for technical advisory have evolved. The emphasis remains on progressing climate strategies while keeping pace with the broader external environment.

Western banks are understanding that sustainability is not just about climate action. For example, in Asia there is still a reliance on thermal coal as part of the current energy mix. While the long-term goal is to transition to cleaner sources, ensuring reliable and affordable energy remains a near-term priority. We’re not there yet, and we need this for a longer period of time.