SINGAPORE – Singapore's largest bank, DBS Group Holdings, said it was impractical to cut off customers with coal exposure in the short term.
DBS announced on Friday that it intends to eliminate thermal coal exposure by 2039.
To get there, DBS will with immediate effect no longer gain new customers who generate more than 25% of their sales with thermal coal. And from January 2026, the bank will stop funding customers with more than 50% of their thermal coal revenues – with the exception of their non-thermal coal or renewable energy activities.
Piyush Gupta, chief executive of DBS, explained the 50% threshold, pointing out that it was "impossible" to expect energy companies BP, Exxon Mobil and Shell to cut their oil businesses significantly over the next five years.
Piyush Gupta, CEO of DBS Group Holdings.
Bryan van der Beek | Bloomberg | Getty Images
"Likewise, the whole group of conglomerates we are dealing with, for whom coal is part of their business, but increasingly trying to do other things, they are trying to build a renewable energy business, they are trying to get into others Forms of activity, "he told CNBC's Squawk Box Asia on Friday.
"When we say we don't deal with customers when their cash is more than 50% of the business, it becomes very difficult and that's just the practical reality. You want to help them do the other things you want to help You're building a wind turbine. You want to help them get on with their business and diversify. You want to help them transition, "said Gupta, a member of CNBC's ESG council.
Banks around the world have been pressured by shareholders and lobbyists to stop funding coal and play a bigger role in promoting sustainability practices among their customers.
Gupta acknowledged that it is "very difficult" to ensure that companies are not "greenwashing" – a term used to give a misleading impression of green credentials.
Part of the problem is not having a clear framework for measuring how companies are achieving their ESG goals – environment, sustainability and governance, the CEO said.
ESG is a set of criteria used to measure a company's performance in areas ranging from carbon emissions to social contributions to employee diversity.
"In reality, in many cases, we rely on our customers to disclose what they are doing. I can't physically go to every mine they have around the world, every plant they have around the world," he said, adding DBS also uses outside consultants to screen and review its clients.
As the awareness of ESG practices increases, disclosure standards are likely to improve, Gupta said.
"While there will be greenwashing on the fringes, I think the level of control will increase and allow people to become more and more comfortable that what is being done is actually right," he said.