OCBC’s SME sustainable financing loan book on track to overtake S$3b by end-2022

OCBC’S sustainable financing for small and medium-sized enterprises (SMEs) is on track to grow 50 per cent to over S$3 billion by the end of the year, said its head of global commercial banking Linus Goh.

For perspective, S$3 billion is about 10 per cent of the bank’s overall SME loan book as at end-September. This tracks well compared with other segments, given that OCBC’s green and sustainable finance loans made up 9 per cent of total loans.

Giving the update two years into the launch of its SME sustainable financing framework on Tuesday (Nov 15), Goh said the growth accompanies a three times rise in the number of SMEs taking up this option with the bank on the year, to over 600 SMEs.

About 500 of the lot are Singapore SMEs, which are set to make up some 80 per cent of the S$3 billion in green and sustainability-linked loans issued. About half of these loans relate to the built environment, and another quarter relate to renewables and energy efficiency, Goh pointed out.

The rest is derived from OCBC’s ventures into Malaysia and Hong Kong. In Malaysia, renewable energy, particularly solar, was the top sector, with potential for growth seen in climate adaptation projects, in light of its government’s flood mitigation efforts. Built environment projects drew more traction among Hong Kong SMEs.

Generally, the figures show some “good momentum” in the take-up of sustainable financing from SMEs, signalling a growing adoption of sustainability into business strategies and operations beyond mere awareness, Goh told reporters.

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This is a marked change from just 12 months ago when sustainability was thought of more as a “good-to-have”, with SMEs mainly motivated to transition because of compliance requirements, he added.

When the framework was launched in November 2020, OCBC had said it was to make it simpler and less costly for Singapore SMEs to access sustainable financing of up to S$20 million. This works, in part, by allowing the SMEs to “pre-qualify” for a loan if they passed the hoops to qualify for a sustainability-related government grant.

Goh on Tuesday said this mechanism is important as SMEs continue to struggle with having the time and the funding to get their green projects accredited. “Truth be told, the world over, the number of consultants and service providers available to help all the big companies is not even sufficient. Leave alone to say, the number of firms who specialise or focus on serving the SMEs, this is even less,” he added.

To capitalise on the momentum, Goh said OCBC will refine the framework to broaden access to sustainable finance to support a bigger spectrum of businesses. The framework currently covers nine sectors, with the ninth category – climate adaptation – added in December last year.

OCBC will also embark on more industry partnerships to extend more self-help emissions measurement and reporting tools to SMEs to help them capture data and benchmark, he said.

One such partnership with the Building and Construction Authority had led to the formation of a tool that makes it simpler and more convenient to predict and improve the energy performance of property projects and facilities, providing assessments within minutes, Goh said. Precision engineering and aerospace company Coway Engineering & Marketing is a client that had utilised the tool in its application for a green commercial property loan with OCBC, he noted.

OCBC also partnered the Global Compact Network Singapore, the local chapter of the United Nations Global Compact, to create a carbon and emissions recording tool, which allows companies to compute their emissions data on energy, water and waste, and use the information to guide their plans on emissions reductions.

The bank could use such data to finance capability building or decarbonisation investments, innovations and projects, and in turn extend green loans to more businesses targeting to shrink their carbon footprint, Goh said. Engineering services company Dyna-Mac Holdings is one such client that used this tool to apply for a sustainability-linked loan with OCBC, he revealed.

With these pieces in place, Goh is also looking to grow the sustainability-linked loan segment of its sustainability financing business with SMEs. Green loans, where the momentum generally is at the moment, are asset or services-based, while sustainability-linked loans require consistent measurement and tracking of targets like carbon emissions and water consumption, he explained.

“By opening up conversations around sustainability-linked loans, we can help SMEs shift their entire business operations towards more sustainable models, beyond just green assets,” Goh said.