MAS launches grant to drive adoption of sustainable financing

Singapore

SINGAPORE is driving up corporate interest in sustainability, with a new grant on board and banks stepping up to improve access to sustainable financing.

The Monetary Authority of Singapore's (MAS) Green and Sustainability-Linked Loan Grant Scheme, which will be effective from Jan 1 next year, aims to step up green- and sustainability-linked lending via two tracks.

First, it will cover up to S$100,000 per loan over a three-year period, in costs incurred by corporates to validate the green and sustainability credentials of loans. These include the costs of engaging service providers to develop frameworks and targets, conduct external reviews and report on the sustainability impact of the loan.

Each loan must be at least S$20 million to qualify for this track.

Here, green loans are used exclusively to finance or refinance eligible green projects.

In the case of sustainability-linked loans, pricing is tied to the borrower's performance against pre-determined sustainability criteria. If certain targets are met, the borrower is rewarded with a ratcheting down of the loan's interest rate. Such loans can be used for general corporate purposes.

Secondly, MAS's scheme will support banks in developing frameworks for green and sustainability-linked loans, by defraying up to 60 per cent of the expenses incurred, capped at S$120,000 over a three-year period.

Frameworks targeted at small and medium-sized enterprises (SMEs) and individuals will receive greater support, with the grant covering up to 90 per cent of expenses incurred per framework, capped at S$180,000, over the same duration.

To encourage knowledge transfer within Singapore, MAS requires that assessment work be done here and for at least half of the gross revenue from the assessments and advisory work be attributable to Singapore-based providers.

With immediate effect, MAS will also expand the scope of the existing Sustainable Bond Grant Scheme (SBGS) to include sustainability-linked bonds. The enhanced SBGS will cover post-issuance costs of engaging independent service providers to review or report for bonds under the scheme.

In a statement to the media on Tuesday, MAS managing director Ravi Menon said: "Loans are a key source of financing across Asia, be it for individuals, SMEs, or large corporates. Therefore, there is significant opportunity to encourage firms across different industries to transition to more sustainable practices through green and sustainability-linked loans."

Banks in Singapore on Tuesday also introduced targeted frameworks aimed at financing activities promoting sustainable development in Singapore and the region.

OCBC's SME Sustainable Finance Framework will give SMEs access to up to S$20 million in funds to roll out their sustainability plans. These can be in the form of green loans, green letters of credit and green banker's guarantees.

The framework will apply to SMEs involved in activities across eight categories under the Green Loan Principles. Developed by the UK-based Loan Market Association, the Green Loan Principles provide a consistent methodology for use across the green loan market.

The eight categories included in OCBC's framework are clean transportation, eco-efficient and/or circular economy, energy efficiency, green buildings, environmentally sustainable management of living natural resources and land use, pollution prevention and control, renewable energy, as well as sustainable water and wastewater management.

To widen adoption, this framework is applicable to projects in these categories even if they are not certified under internationally or nationally recognised sustainable schemes.

In a briefing to reporters on Tuesday, OCBC's head of global commercial banking Linus Goh said there is growing awareness among SMEs and their service providers of green financing's potential.

"(Companies now) recognise the value of (green finance) as being good for the future, and also good for the present. With the help of schemes and financing frameworks, I think it will become more compelling," he said.

UOB's new sustainability framework is targeted at companies contributing to the creation of smart cities. In this case, smart cities refer to those that integrate physical infrastructure and digital spaces to enable a more environmentally-friendly city and higher quality of life for residents.

The lender's Smart City Sustainable Finance Framework sets out criteria for companies to access a range of sustainable banking products. These include having clear sustainability strategies and objectives, meeting sustainability performance targets, and using proceeds to further their sustainability agenda.

Companies must also demonstrate how their activities promote a better quality of life for residents through the use of renewable energy, green building construction, improved energy efficiency, green transportation, sustainable water and waste management and/or climate change adaptation.

UOB will monitor each company's management of loan proceeds and the environmental and social impact of their business activities. UOB's head of group wholesale banking and markets Frederick Chin said: "Financial institutions can and must play a part, together with governments and businesses, to help channel more funds to sustainable development."

BNP Paribas' sustainable supply chain financing framework will also come under MAS's new grant scheme. The bank will work with sustainability certification experts to establish key performance indicators for suppliers. Under the framework, suppliers will access a lower cost of financing than their usual bank facilities.

HSBC Singapore's corporate sustainability head Frances Chen expects MAS's scheme to lower the barriers of access to sustainable financing.

"The costs associated with issuing green loans have meant that they have typically remained the preserve of large corporates. The (new scheme) will support financial institutions' endeavours in developing verified sustainable financing frameworks catered to SMEs," she said.