SINGAPORE - OCBC Bank doubled the amount of sustainable financing that it extended to small and medium-sized enterprises (SMEs) in 2023 over the previous year.

It provided over $7 billion of sustainable financing to over 1,200 companies across the region in various sectors, compared with $3.3 billion in 2022.

The uptake is encouraging, said OCBC’s head of global commercial banking Linus Goh, in an update on the bank’s SME Sustainable Finance Framework which was rolled out in 2020.

“We recognised quite early on that SMEs would not find going sustainable that easy. They don’t have the wherewithal of large companies and to have that motivation to get started. We felt they needed some support,” he said.

The framework assists companies in Singapore, Malaysia, Hong Kong and Indonesia.

It makes it simpler and less costly for SMEs to access sustainable financing as they do not need to develop their own frameworks, seek consultants and conduct verification on their own.

This is beneficial to SMEs as while they currently might not have to fulfil disclosure requirements the way listed firms do, they also face pressure to be sustainable.

“They are not the ones that primarily have the obligation because they are listed or have to submit to some rules. But they have indirect requirements, whether it’s from the customers or from the employees, and certainly from the ecosystems in which they operate,” Mr Goh said.

Over 80 per cent of the SMEs that took up the bank’s sustainable financing in 2023 were from the built environment, clean transportation, energy efficiency and renewable energy sectors.

The bank also helped 24 larger and mid-sized corporates in about a dozen industries to be first movers in sustainable transformation, in the hopes of inspiring others in that sector.

Mr Goh added that these firms were willing to take the first step to working towards targets, such as an improvement in their decarbonisation, greenhouse gas emissions or environmental, social and governance ratings. Many of these firms are also not listed companies.

“It is significant because these are the ones that will then lead the whole momentum (in their industries), whether it is in engineering, construction, garment textiles or manufacturing... Once you have the first one move, the rest will follow,” he added.

The bank only had one of these first-mover companies in 2022, but this rose to 24 in 2023, and it hopes to more than double the number in 2024, Mr Goh said.

He added that it is also the small companies that are making a big impact in sustainability, as they are the ones with new tools and technology to aid the shift to alternative energy. But they also need support to scale, he said.

“Being a small company and growing in and of itself is quite difficult. But when you’re confronted with something that is as large as going green, you will face a tidal wave at some point. And so the companies do need support to be able to transition to take on more business, scale and sustain that impact,” he added.

For example, a company called KoolLogix has methods to improve the management of heat in data centres, driving down energy consumption. These solutions can help companies with data centres to save more than 50 per cent on electrical bills. A bank like OCBC can provide help to scale such solution providers, Mr Goh said.

One of the companies that took up an OCBC sustainability-linked loan is casual lifestyle knitwear firm Ghim Li.

The $16 million loan it secured is pegged to significant reductions in its greenhouse gas emission intensity over the loan tenor.

Ghim Li chief executive Felicia Gan said the fashion and apparel industry is facing great pressure to be more environmentally sustainable, adding that the firm has already obtained various other certifications for its factories and reduced its carbon dioxide emissions.

“With this loan, we will be able to enhance our green processes and further reduce our carbon footprint. Doing so places us in a position of strength in the industry, and allows us to respond to our clients’ demands for more sustainable materials and, at the same time, make an impact on the environment that we live in,” she added.

Mr Goh noted that while the sustainable loans are priced better, the cost savings on interest are not significant and are not why SMEs are starting to take up such financing.

“The motivation for SMEs to go green is really not about that little savings that they can make on interest. That is truly not a sufficient motivation. Nobody who’s gone green goes because we can give them that little improvement in pricing,” he said.

He added: “Most of them who get it go green because they want to be ahead of the curve. They want to future-proof themselves. They want to position themselves better.

“Over the last three years, the whole shift of supply chain, that disruption, continues even till now and many players – whether you’re in manufacturing or if you’re supplying domestically – do benefit from being clear and being articulate about how (they) are moving forward in sustainability.

“Your buyers are much more conscious of the need for you to meet that requirement.”