Banks have been given new guidelines to encourage them to take extra care when lending to firms that might disregard environmental or corporate governance standards.
The framework released by the Association of Banks in Singapore (ABS) yesterday wants banks to highlight in their annual reports from next year how they plan to prevent lending to companies with irresponsible practices.
The banks should then implement these rules by the end of 2017.
The ABS guidelines provide broad principles on what banks need to do when dealing with firms in eight industries, including forestry, agriculture, mining and energy.
But they do not specify actual lending policies and do not carry any penalty.
ABS is not a regulator and will not dictate the actions of member banks, said ABS director Ong-Ang Ai Boon. The aim of the guidelines is to provide a framework for individual banks to form their own internal rules.
"But they will not be the silver bullet to solve the haze problem. It will not be the short-term solution to the issue, but will shape long-term changes in the practices of bank customers," Mrs Ong said.
The ABS announcement came as Singapore banks are under increased scrutiny over claims that they may be financing companies suspected of causing the forest fires in Indonesia.
The three local banks have declined to discuss specific clients due to confidentiality issues but their spokesmen said that they are ready to "reassess" their relationship with any client found to have breached environmental, social and governance regulations.
"In recent weeks we had engaged a few of our palm oil plantation customers to reaffirm their zero burning policies," DBS added, while OCBC said it had turned down opportunities to finance companies with questionable practices.
Despite the ambivalence, the guidelines are a step in the right direction, said Dr Lawrence Loh, director of the Centre for Governance, Institutions and Organisations at the National University of Singapore.
"Solving the haze crisis will require an all-round approach, not just actions by any single industry. We already saw supermarkets withdrawing products. If other areas also send out the same message, it will supplement the diplomatic actions that have so far been ineffective," he said.
Meanwhile, more can be done by the Monetary Authority of Singapore (MAS), said Ambassador-at- Large at the Ministry of Foreign Affairs Tommy Koh yesterday.
Professor Koh said in a lecture: "I'm hoping that MAS will require all the financial institutions in Singapore to join the Roundtable for Sustainable Palm Oil," referring to a non-profit group set up to develop environmental standards for the palm oil industry.