Green Financing on the Rise in Singapore As Firms Spend More on Sustainable Projects (2024)

SINGAPORE – Banks are fast expanding their lending in the “green economy” as companies ramp up their spending on sustainable projects.

The accelerating move to go green is being accompanied by a Monetary Authority of Singapore (MAS) initiative to better clarify guidelines around sustainable and transition activities.

The framework – known as the Singapore-Asia Taxonomy for Sustainable Finance – was launched in December 2023 and lays out standardised parameters of what such green activities look like, noted local banks.

They make it far clearer what projects and activities can be classified as green and so qualify for sustainable financing, a sector of bank lending that is growing fast.

UOB said its sustainable financing experienced strong growth as it helps companies in the region transition towards a low-carbon economy. Its lending in this area rose 67 per cent to $38 billion year on year as at end-September 2023.

This was led by healthy growth in the built environment sector – this encompasses real estate, construction and infrastructure – and solar renewables to support the construction of new green buildings, improvements to existing buildings and smart city infrastructure development, UOB said.

About $4.5 billion of trade financing has also been provided to facilitate the import and export of sustainable agri-commodities, renewables and energy efficiency equipment, and electric vehicles.

The bank also now recognises 42 certificates under its sustainable trade finance solution, which covers aspects like the import and export of palm oil, coffee, tea, sugar, biomass/biofuel, recycled chemicals, and sustainable building materials, among others.

OCBC Bank said its sustainable financing loans had risen 28 per cent in the year to Sept 30, 2023, with such borrowings accounting for 12 per cent of customer loans.

It has made $52.1 billion in total sustainable financing loan commitments, the bank said, which already exceeds its target of $50 billion by 2025.

DBS Bank has also seen a growing interest in green loans, especially in sectors such as real estate; energy, renewables and infrastructure; and technology, media and telecommunications.

Green loans differ from regular loans in that they come with provisions such as strict environmental criteria, and reporting and verification, to ensure the funds are used for their intended purpose. They can also be offered at preferential rates compared with traditional loans.

Green loans are also designed specifically to support projects that have environmental benefits, such as renewable energy or green building projects, said DBS sustainability head Yulanda Chung.

Besides supporting sustainable projects, financing can also be used to help companies shift from carbon-intensive activities, for example.

Ms Chung said: “Transition financing is an important tool to bridge the gap by enabling companies to adopt low-carbon technologies that will reduce their environmental impact.”

For example, DBS partnered consumer brand H&M in a green loan programme that facilitates supply chain decarbonisation in the apparel sector. The initiative allows suppliers to access financing from DBS and technical support from a sustainability consultant to upgrade factories to decrease their climate impact.

The loan amount and tenor are also determined based on a client’s needs and the project aligning with the bank’s frameworks, said Mr Adrian Ow, UOB head of business enablers and environmental, social and governance (ESG) solutions.

For example, a green loan of around $300 million was given to ST Telemedia Global Data Centres (STT GDC) for its data centre in Loyang. The loan came with specific criteria linked to recognised green building certifications to ensure that the centre’s construction and design aligned with environmental benchmarks and promoted eco-friendly, energy-efficient infrastructure.

The loan came with specific criteria to ensure that the centre’s construction and design aligned with environmental benchmarks and promoted eco-friendly, energy-efficient infrastructure. PHOTO: ST TELEMEDIA GLOBAL DATA CENTRES

STT GDC group corporate finance officer Rebecca Ng said: “Obtaining the loan was relatively smooth as our data centre featured sustainable design features, market-leading efficiencies and was designed to achieve recognised green building certifications.”

She added that the evaluation process for green loans is as rigorous as that for traditional loans, with stringent assessment to ensure that the proposed projects align with predefined environmental standards.

“Additionally, a critical aspect of the process involved having consultants or institutions that are recognised experts in environmental and social sustainability review the green loan,” she said.

The Singapore-Asia taxonomy provides greater clarity on projects that qualify for green financing.

DBS’ Ms Chung said: “The taxonomy clearly defines what activities qualify as ‘green’ and ‘transition’ across eight key sectors, which helps banks understand which activities they can confidently finance under their green lending programmes.”

UOB’s Mr Ow added that the taxonomy also lays out which activities under each economic sector can be classified as green, amber or red, which will help sustainable financing to flow more readily to green and amber ones.

OCBC group chief sustainability officer Mike Ng said the new guidelines could help financial institutions to extend green and transition loans to a wider range of projects for which the eligibility criteria were less clear previously.

The bank structured a sustainability-linked loan to help local firm Go Holdings develop, monitor and improve its performance metrics around ESG so it could get an internationally-recognised rating. It also supported a local firm in financing a geothermal project in the Philippines.

Source: The Straits Online © SPH Media Limited. Permission required for reproduction.