Strong disclosures. Net Zero needs clarity. BUY
UOB scores a 74 under our enhanced ESG 2.0 scoring, placing it firmly above average. The Group’s quantitative ESG disclosure levels are high boosting transparency. Nevertheless, it is yet to articulate a clear pathway, timeline or interim targets towards Net Zero. We believe disclosures here as well as improving the mix of independence and diversity in its Board could result in a higher score. With an improving outlook on net interest margins together with strong capital levels and provisioning, maintain BUY.
Strong levels of disclosure and transparency
UOB’s quantitative ESG disclosures are the most extensive compared to domestic peers. This significantly improves transparency and risk measurement. However, there is no disclosure on its Scope 3 financed emissions or a time-bound target on when this may become available. Separately, UOB is the first domestic bank to achieve carbon neutrality on its operations and has a continuing target to maintaining this emissions profile. We also note UOB’s asset management and venture capital divisions are aligning their portfolios towards low carbon factors, while also practicing stewardship with increased engagement in investee companies on ESG topics.
Clearer pathway needed for Net Zero
The Group’s pathway towards Net Zero and interim targets are not clear, unlike peers such as DBS. More details here could support a higher scoring, in our view. At the same time, increasing the proportion of independent directors at the Board as well as raising diversity (only 20% of the Board is female) could further strengthen governance, we believe. Separately, we believe UOB’s investment in technology as well as its large, SME client base gives it significant opportunities for enhancing financial inclusion across the region.
Strong ASEAN footprint. Maintain BUY
While NOII is likely to remain under pressure in the context of current market conditions, we believe rapidly improving NIMs from Fed hikes should provide an offset. At the same time, the Group’s gearing towards secular ASEAN growth driven by domestic consumption as well as NorthSouth supply chain shifts should support medium term earnings visibility. While asset quality under slow economic conditions remain a risk, UOB’s strong capital and provisioning offers buffers. Maintain BUY.