MAS launches world's first grant scheme for green and sustainability-linked loans

The initiative, called the Green and Sustainability-Linked Loan Grant Scheme, is the first of its kind in the world.
The initiative, called the Green and Sustainability-Linked Loan Grant Scheme, is the first of its kind in the world.PHOTO: ST FILE

SINGAPORE - Companies of all sizes will get more support in securing green and sustainability-linked loans, with a new grant scheme launched by the Monetary Authority of Singapore (MAS) on Tuesday (Nov 24).

The initiative, called the Green and Sustainability-Linked Loan Grant Scheme, is the first of its kind in the world and will start in January next year, said the MAS.

It will also encourage banks to develop frameworks so small and medium-sized enterprises (SMEs) can access such financing more easily.

MAS managing director Ravi Menon said: "Loans are a key source of financing across Asia - be it for individuals, SMEs or large corporates. Therefore, 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."

Singapore companies borrowed $10.2 billion through green and sustainability-linked loans from January 2019 to the first half of this year.

Green loans are those that help finance new or existing green projects, while sustainability-linked loans provide price incentives for borrowers to achieve sustainability performance targets.

To this end, the new grant scheme will cover up to $100,000 of a borrower's expenses in validating the green and sustainability credentials of a loan over a three-year period. Such costs are incurred for example in obtaining external reviews and reporting on the sustainability impact of the loan.

Additionally, the scheme will support banks when they develop frameworks that will provide standardised criteria and processes for green and sustainable financing.

The grant scheme will defray up to 60 per cent of the banks' expenses, capped at $120,000 for such green and sustainability-linked loan frameworks.

This amount will cover expenses to engage service providers to develop frameworks, obtain external reviews and report on the loans originated under the framework.

Furthermore, it will defray by 90 per cent the expenses incurred by banks to develop frameworks specifically targeted at SMEs and individuals, capped at $180,000 per framework.

"This is to further encourage banks to provide greater support to SMEs, which are a key driver of economies, and enable individuals to contribute to the sustainability agenda by integrating sustainability considerations in their financing decisions," MAS said.

Together with the launch of the scheme, OCBC Bank, United Overseas Bank (UOB) and BNP Paribas announced frameworks that will qualify for the grant.

OCBC's framework will help SMEs access sustainable financing of up to $20 million, which will cover green projects that are related to categories such as energy efficiency, green buildings and pollution control, among others.

OCBC bank head of global commercial banking Linus Goh said: "This framework is designed to make it simple for SMEs to access green financing for their businesses and projects, without the complexity and cost of establishing a customised framework for each company.

"We believe this will help our SME customers accelerate their sustainability plans - both the SMEs which are enabling the change of industries and businesses as service providers in sustainability, as well as SMEs across all industries which are beginning to evaluate and adopt sustainability practices in their businesses, directing investments into green businesses, technology and infrastructure."

UOB also launched a framework to finance companies contributing to smart city creation. Firms must be able to show how their activities promote better quality of life for people through improved energy efficiency, green transportation and sustainable water and waste management, among other factors.

UOB head of group wholesale banking and markets Frederick Chin said: "The United Nations estimates that US$2.5 trillion (S$3.36 trillion) is required annually for developing countries to bridge the financing gap in achieving the sustainable development goals by 2030.

"Financial institutions can and must play a part, together with governments and businesses, to help channel more funds to sustainable development. Such efforts will go a long way in making the cities of Asia more sustainable and liveable."

BNP Paribas is piloting a framework to promote sustainable practices in corporate supply chains. 

Its Singapore chief executive Joris Dierckx said: “Singapore is Asia’s top logistics hub, offering world-class connectivity. 

“With the unprecedented boom in regional cross-border trade and with the challenges that Covid-19 has brought to the supply chain network, we believe that it is crucial for banks to increase their efforts to help clients incorporate sustainable supply chain practices.”