Singapore offers bank loans, grants to buffer green expenses

The island-state's central bank has introduced a sustainability-linked scheme to help companies defray expenses when engaging with service providers to validate the green credentials of a loan.

Singapore has unveiled a new scheme to help buffer expenses incurred by companies when they engage independent service providers to validate the green credentials of a loan. It is also offering financial support to encourage banks to develop loan frameworks that make such financing more accessible to small and medium-sized businesses (SMBs). 

Provided under the new Green and Sustainability-linked Loan Grant Scheme (GSLS), the initiatives are part of the island-state's goal to develop green and sustainable financial markets as well as products to support Asia's move towards a low-carbon future, the Monetary Authority of Singapore (MAS) said in a statement Monday. 

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MAS defines green loans as any loan instruments made available to finance, in whole or part, new or existing and eligible green projects, while sustainability-linked loans are loan instruments that incentivise the borrower's achievement of predetermined sustainability performance targets. This is achieved through aligning the loan terms to the borrower's performance against these sustainability performance targets, such as a reduction in interest rates if the targets are met. 

The GSLS, which would kick in from January 2021, would boost companies' ability to obtain green and sustainability-linked loans. It could be tapped to cover a company's expenses in conducting independent sustainability assessment and developing green and sustainability frameworks and targets. These could include second-party opinions, verifications, certifications, or ratings. 

MAS would defray up to SG$100,000 ($74,353) of such expenses per loan. 

The industry regulator also hopes to encourage banks to develop similar frameworks for green and sustainability-linked loans by tapping the grant to defray their expenses in engaging independent advisory service providers to develop such frameworks, obtain external reviews, and report on the allocated proceeds of loans originated under the framework.

MAS would cover up to 60% of these expenses, capped at SG$120,000 ($89,223), in the development of such frameworks.

It would also defray, by 90%, expenses that banks would incur to establish frameworks designed for SMBs and individuals, capped at SG$180,000 ($133,835) per framework. The regulator hopes this will encourage banks to offer greater support to these smaller businesses, so they can integrate sustainability considerations in their financing decisions and be enabled in being part of Singapore's sustainability efforts. 

In addition, MAS said the existing Sustainable Bond Grant Scheme had been expanded to include sustainability-link bonds covering post-issuance costs of engaging independent help to obtain external reviews or report for bonds under the scheme. 

"The [GSLS] will help to channel more financing towards green projects and enhance corporates' sustainability practices," it said. "To promote the transparency and integrity of green and sustainable financing flows, MAS will require corporates to engage independent sustainability assessment and service providers and obtain independent external reviews on these loans to demonstrate alignment with internationally-recognised standards." 

As part of the launch, BNP Paribas, OCBC Bank, and UOB were amongst the banks that have introduced green and sustainability-linked loan frameworks that would qualify for the new scheme. These frameworks feature standardised criteria and processes, which would streamline assessments of green and sustainable lending to companies as well as support clients, including SMBs and large enterprises in financing renewable energy and energy efficiency activities.

MAS' managing director Ravi Menon said: "Loans are a key source of financing across Asia...[so] there is significant opportunity to encourage firms across different industries to transition to more sustainable practices through green and sustainability-linked loans. MAS' grants for green loans and bonds are an important part of the green finance ecosystem that Singapore is building, to support Asia's pivot towards a sustainable future."

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