Can Singapore banks deliver the green promise?
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IN MAY, OCBC joined DBS and UOB in setting targets to reduce financed emissions in six emissions-intensive sectors. Decarbonising the loan portfolio has been very popular lately, with large banks doubling down on sustainability-linked loan (SLL) frameworks. While bank intermediation to facilitate a greener transition is promising, a careful assessment of the associated risks is also crucial.
Singapore has positioned itself as a regional hub for green finance. The national mandate has raised the prominence of sustainable loans, with a larger proportion being SLLs than traditional green loans.
In contrast to green loans, which exclusively finance environmental or climate-related projects, SLLs allow borrowers not in typical green industries to access sustainable financing. A portion of the interest rate on SLLs depends on the borrower’s ability to achieve sustainability performance targets (SPTs). These targets typically relate to environmental, social, or governance (ESG) metrics, such as greenhouse gas emissions reductions or renewable energy adoption.
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