Impact Assessment of Lending to the Automotive and Palm Oil Industries for DBS
Background
DBS is a leading Asian financial services group present in 18 markets. Headquartered and listed in Singapore, DBS has a growing presence in the three key Asian axes of growth: Greater China, Southeast Asia, and South Asia. As a purpose-driven bank, DBS is committed to creating long-term value by managing its business in a balanced and responsible way to consistently deliver value to all stakeholders. Creating more value requires DBS to better understand the impacts of its clients’ activities through better-informed lending decisions.
Additional information on the organization can be found here.
Value for DBS
DBS started measuring the social and environmental impacts of its lending activities through two pilot studies. The first pilot focused on the transition from production of combustion engine vehicles (CEVs) to electric vehicles (EVs), while the other one zoomed into crude palm oil production in Indonesia and the potential impact of No Deforestation, Peat and Exploitation (NDPE) policies. These pilots provided DBS with insights into the impacts of a bank’s lending activities in the automotive and palm oil sectors respectively. They highlight levers for improvement and impacts of enabling new technologies or policies of lending to each sector. These insights can also be used to engage with clients and strengthen the bank’s lending policies.
In addition, DBS got acquainted with impact measurement and valuation (IMV) methodologies, how to implement that to a bank’s lending activities and had the whole process reviewed by an independent academic party.
The full reports can be found here: Impact assessment of lending to the automotive industry and Impact assessment of lending to the palm oil industry.
How was impact measurement applied in practice?
Impacts in both pilots were measured with a combination of bottom-up data and top-down impact databases. As part of the pilots, several scoping decisions had to be made. In the case of the automotive industry pilot, the value chain in scope included both production and use of vehicles. In the case of the palm oil pilot, it covered the plantation, its suppliers and the clients (palm oil use estimated through industry average). The impacts selected for these pilots focus on economic, social and environmental domains containing both (net) positive and negative impacts. Examples of the impacts in scope are: Salaries, taxes and profits; Well-being effects of employment; Underpayment; Contribution to climate change or Scarce materials depletion. An Integrated Profit & Loss (IP&L) was used to assess impact in a structured way through impact pathways and calculations heavily relying on client data.
Results showed that by using impact measurement, DBS can get a better understanding of the impact of its lending activities and increase its positive impact by quantifying the magnitude and types of impacts across the value chain. Results for each pilot are shown in the graphs below.
For a detailed description of the steps followed, refer to the Impact Measurement in the Financial Sector document.
