Banks are pulling out of fossil fuels, even though they are still lucrative. S'pore banker explains why.

Mike Ng’s job didn’t exist when he joined the finance industry in 1998.

Graduating right smack into the aftermath of the 1997 Asian Financial Crisis, Ng recalls that it wasn’t the best climate for young job-seekers.

Thankfully, Ng managed to secure a job in a bank, and after a few “trial and error” roles, soon began to specialise in an area of banking called “infrastructure financing”.

Ng explains that certain projects such as power plants, refineries, water treatment plants (i.e., infrastructure) require massive investments of at least S$100 million, or even a few billions (i.e., financing).

Thus, “infrastructure financing” involves providing loans to make such massive projects possible, and Ng’s role was to evaluate the prospects of different projects based on whether they would repay the loans that are provided to them.

Naturally, as a banker, Ng’s job was to look at the numbers, which all seemed to point to growth fuelled by the fossil fuel industry.

“At that point in time, people always talked about the cheapest technology that is out there.? And it so happens that coal-fired power plants were the cheapest.”

Ng explains that at the time, there wasn't a lot of focus on sustainability as a whole — and reminds us later in the interview that the United Nations’ (UN) Sustainable Development Goals were not published till 2015.

2015: A memorable year

Which is why 2015 will always be a memorable year for Ng. Besides the UN Sustainable Development Goals, the Paris Agreement was signed.

Significant as these two milestones might have been, their true impact on Ng’s career came in the form of creating a subtle shift behind the scenes of the industry.

Ng does not remember that he or his colleagues looked to the signing of the Paris Agreement as a “pivotal moment”.

Instead, the international climate agreement fuelled a wave of greater awareness, which, amplified by media attention, became a global movement.

“That, I think, started a movement where everyone recognised there’s an issue.”

Ng compares this process to how Covid-19 threw certain social issues (such as the living conditions of migrant workers, access to healthcare, social inequality) into the spotlight.

“The calculus actually changed for us”

Ng also recalls that in the late 2010s, renewable energy became more viable, as advancements in technology brought prices down.

For example, the cost of solar power modules, a critical component of solar panels, has come down by 90 per cent in the last 10 years, says Ng.

In this way, increasing recognition of the harms done by traditional fossil fuel-powered development, along with the increased viability of renewable energy options, created the perfect conditions for sustainable finance to grow.

“So with that, the calculus actually changed for us,” Ng says.

Why non-sustainable projects may remain lucrative for some banks

In spite of this industry-wide shift away from non-sustainable projects, such as those which are heavily reliant on polluting the environment, Ng explains that these remain lucrative for the banks which continue to be involved.

This is because it is now easier for the remaining banks to charge higher interest rates, since there is less competition for that business.

“If a bank wants to play that game, definitely there is money to be made, says Ng.

But Ng also explains that there is a definite risk associated with such projects, since things like non-environmentally-friendly coal-fired power plants will eventually become obsolete with renewable energy on the rise.

This explains why banks have largely moved away from these non-sustainable projects and started looking into investing in things like renewable energy, which will be viable over the long term instead.

With the benefit of hindsight, Ng can trace the various developments and milestones as easily and smoothly as one might read off a timeline in a textbook, but this transition was definitely impactful for him, personally as well.

Overcoming denial

Having spent over a decade in infrastructure financing, Ng initially struggled to come to terms with growing climate-consciousness and what that would mean for his work.

“At first, there was a little bit of… maybe denial,” says Ng, recalling how he struggled with questions about whether his work on non-sustainable energy projects was still justifiable.

After all, such projects improved quality of life in rural areas, even if that came at the expense of environmental damage.

“When I started looking at infrastructure financing years ago, when you build a coal-fired power plant, it wasn’t common to be thinking about climate consequences. You imagine in the back of your mind [communities] finally having access to electricity. A little girl is finally able to do her homework at night under an electric lamp, rather than next to a kerosene lamp … So you tend to associate certain positive emotions with what you're doing.”

However, helped by greater media attention on climate change, and with new scientific reports being published, Ng gradually realised that the shift to sustainable development would be inevitable.

Ng, not being someone who would run from the challenge of doing something new, soon found himself switching his focus in 2018, to work on “greener” projects: those involving renewable energy, and projects which were themselves sustainable, such as green transportation, water treatment, green buildings, etc.

Today, Ng is OCBC’s head of structured finance and sustainable finance.

How do sustainable projects make financial sense to a bank?

Ng explains that banks moving away from older technologies is not just about doing good, but also about pursuing areas that are ripe with future opportunity.

To Ng, it is a simple matter of looking at the economics, and how the technologies which support sustainable development are set to grow in importance.

To underscore the fact that this is an area filled with “massive opportunities”, Ng asks us to put ourselves in the shoes of a refrigerator manufacturer:

“If you're selling refrigerators, all you're doing is waiting for the next refrigerator to break down right? Before somebody comes in to buy from you.

But if you have a case where people say that the old refrigerators need to be thrown out the door, and you’ve got to replace all these refrigerators with new refrigerators, I think there is going to be a massive opportunity there.”

In the same way, the growing awareness of the need to transition to greener means of generating electricity means that demand for things like wind farms is set to increase in the near future.

Also, Ng explains that it is “a matter of managing the risk” that comes from continuing involvement in older technologies, such as coal-fired power plants.

“As a bank, reputation is very important,” says Ng, explaining that if a bank were to continue its association with unsafe or unsustainable industries and practices, it might soon see itself losing out in terms of customers and even employees.

Ng recalls how, when OCBC bank announced that it would no longer fund coal-fired power plants, a colleague shared that she had been considering leaving the bank if it did not make that commitment.

Making sense of it personally

Personally, Ng says that one of his motivations also lies in knowing that his work can “make a difference in some small way or another,” to future generations.

Another bonus for him personally is that he gets to work on new and exciting projects.

He recalls working on an offshore wind farm in Taiwan, where he found himself being confronted with a host of complex questions that he’d never encountered, notwithstanding his experience in working on power plants before.

This, being his first time looking at a wind farm, was a “learning experience”, one which clearly remains quite fresh to Ng, who elaborates at length about how he learnt about assessing the suitability of a wind farm’s location based on probabilistic statistics that indicated how much wind there would be there, as well as considerations such as typhoon resistance, and how to minimise the impact on marine life.

The project is set to be completed next year and Ng is looking forward to visiting it in person — travel restrictions permitting, of course.

“The burden of history” and managing younger people

Reflecting on the trajectory of his career, and how his past experiences may lead him to a different perspective from his younger colleagues, Ng muses:

“I have the burden of history, right? Because I have been looking at this transition for a long time.

For a young person that comes in now, looking at renewable energy projects, without actually having looked at the other old industries and old technologies, I think, yeah, you would look at things quite differently.”

Another key generational difference is how the internet has allowed for greater access to information.

Ng is keenly aware of the fact that as a manager of those from younger generations, there’s a need to be much more open and willing to engage.

After all, Ng says, the next generation is one that has been exposed to a much greater diversity of viewpoints, especially on issues where “there's no right or wrong answer, per se.”

Ng now tries to read as much and as widely as possible, though he points out that this was quite a privilege just a few decades ago.

Back then, Ng explains, you were likely to be exposed to very little of the news unless you had the privilege of working in an office which subscribed to a number of both local and international newspapers.

With so much information — previously only accessible to those with subscriptions — now available for free online, it has been easier for Ng to keep his finger on the pulse of what’s happening in the world, so he can keep up with the conversations going on in society and among his younger colleagues.

Ng is also helped by the fact that he has two young daughters, who give him a first-hand look into how the next generation sees the world.

His teenage daughter, Lenna, helps him keep up with online lingo and text acronyms. Asked to cite examples, Ng glosses over “LOL”, calling it passe, and instead offers some lesser-known shorthand: “TTFN” (ta ta for now) and “FWIW” (for what it’s worth).

Yumi, Ng’s younger daughter who is 10 and very environmentally conscious herself, also helps Ng keep track of his own plastic consumption, as he’s been trying to reduce his personal plastic footprint, especially single-use plastic like straws and plastic containers.

OCBC bank’s green banking progress

There’s some similarity between how Yumi helps to keep track of her father’s plastic consumption, and how Ng works at OCBC to keep track of sustainability-related considerations in the bank’s financing activities.

OCBC’s sustainable finance portfolio includes green loans, loans for sustainability-related projects like

wind and solar farms, and loans to companies which meet sustainability-related KPIs.

Amid the pandemic, OCBC has made more than S$8 billion of such loans, thanks in part to repeat customers, says Ng.

All of this contributed to OCBC reaching its initial sustainable finance target of S$10 billion in the first quarter of 2020, two years ahead of schedule, prompting the bank to set a new sustainable finance target of S$25 billion by 2025. OCBC is already well on track towards its new target, with S$20 billion in such loans already committed as of end-2020.

And, under Ng’s watch, one can be sure that there’s much more to come.

This sponsored article by OCBC taught the writer a little more about finance.

Top photo courtesy of OCBC