The Business Times

Bank of Singapore adds ESG factors to investment financing assessment framework

Michelle Zhu
Published Tue, Jul 13, 2021 · 12:37 PM

BANK of Singapore (BOS) is introducing environmental, social and governance (ESG) factors to its investment financing assessment framework to offer a higher loan quantum to mutual funds with MSCI ESG ratings of AAA or AA.

In a press statement on Tuesday, the private banking arm of OCBC said that such a move is a first in Asia, and in line with the bank's push for sustainable investing.

Based on the new framework, the advance ratio of a sustainable mutual fund with either rating will be increased by five percentage points after it is assessed to be an acceptable collateral. Advance ratio is the maximum percentage amount of the market value of the collateral that could be extended as a loan.

Such a change would result in a US$500,000 increase in additional financing available for a client with US$10 million in acceptable mutual funds, assuming an increased advance ratio of 75 per cent from 70 per cent with the addition of ESG factors. The final loan quantum will be lesser than the collateral value, in line with the industry practice.

In its statement, BOS said it aims to encourage high-net-worth individuals to invest sustainably through offering a higher financing quantum for highly rated sustainability funds.

Before factoring in sustainability for investment financing, the bank's financing against mutual funds was determined based on three factors, namely: the volatility of the asset's value, liquidity of the asset, and credibility of the fund manager.

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"By adding an ESG lens to our lending framework, we hope to create a direct and positive impact in the investment of highly-rated ESG assets, starting with mutual funds," said BOS global chief risk officer Alexandre Lotfi.

BOS currently offers more than 130 acceptable mutual funds with MSCI ESG fund ratings of AAA or AA. Mutual funds with these ratings are invested in companies that are leaders in tackling environmental, social and governance problems and have sustainability at the core of their business strategies.

BOS defines "sustainable investments" as those with a MSCI ESG rating of BB and above - a requirement met by more than 50 per cent of the bank's assets under management as at May 31, 2021. The bank adopted MSCI ESG ratings in 2020 to provide greater transparency on the ESG characteristics of their portfolios.

It registered a compound annual growth rate of close to 10 per cent in loans for investment financing over the period of 2016 to 2020.

"We believe that as a private bank, our core business activities of wealth management can be a lever for positive environmental and socio-economic impact. While financial returns will always be important, there is a growing momentum among clients to do good by doing well," said Mr Lotfi.

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