Good ESG disclosure levels. Could be better. BUY
OCBC scores a 70 in our enhanced ESG 2.0 methodology – this is above average. The Group is executing on its green financing targets strongly and scores well on workplace inclusivity and diversity. However, we believe OCBC’s score could be significantly enhanced by increasing transparency on its Net Zero target and pathways to get there. Also detailed quantifications on operational environmental impacts are needed. Improving NIMs together with increasing North-South capital and wealth flows should support OCBC’s earnings momentum going forward, we believe. Maintain BUY.
Strong Green-financing & management diversity
OCBC has successfully deployed SGD34bn of sustainable financing, making good progress on its SGD50bn by 2025 target. It has also set targets to reaching carbon neutrality from its operations by 2022. Contrastingly, there is limited disclosure on the Group’s intended pathway towards Net Zero or a timeline. Separately, on workforce inclusivity, it is notable that women make up 58% of the total compared to our global comparison, HSBC (5 HK, HKD40.30, NR). Importantly, the proportion of women in senior management stands at 39% vs. 32% for HSBC. However, diversity at the Board level is lower with just 25% women, while proportion of independent directors are also lower than global comparisons.
Notable headroom for greater disclosure levels
We believe more disclosures are needed in areas such as waste and recycling. Similarly, there is limited disclosures on senior management rewards structures for achieving ESG targets. Clarity here would be critical for transparency on the Group’s overall sustainability strategy, in our view. Concurrently, there is limited details on OCBC’s pathway to capture financed emissions. Improved disclosures here could result in a higher ESG scoring, in our view.
Margins set to further improve. Maintain BUY.
We expect the strong NIM improvement momentum delivered in 1H22 to flow through to 2H22 as Fed rate hikes get further baked in. At the same time, the Group’s gearing towards North-South supply chain and wealth flows gives it earnings visibility. China re-opening could be a near term upside catalyst. Asset quality remains benign so far, but slowing macro conditions increasing provisioning costs need to be watched. Maintain BUY.