Reply to Parliamentary Question on Green Financing amongst SMEs

Published Date: 05 October 2020 the Monetary Authority of Singapore

QUESTION NO 201

NOTICE PAPER 74 OF 2020

FOR WRITTEN ANSWER

Date: For Parliament Sitting on 5 October 2020

Name and Constituency of Member of Parliament

Ms He Ting Ru, MP, Sengkang GRC

Question:

To ask the Prime Minister (a) whether the Government tracks the take-up rate of green financing loans and products for SMEs; and (b) what are the plans to make green financing more accessible to SMEs.

Answer by Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:

1.      Green and sustainable financing flows are growing strongly in Singapore. From 2019 till the first half of this year, approximately SGD 4.8 billion of green and sustainability bonds were issued in Singapore. Singapore corporates also borrowed SGD 10.2 billion through green and sustainability-linked loans [1] in the same period. While green and sustainable financing has nearly tripled from 2018 volumes [2] , we are still at an early stage of this journey, as is the case internationally. The green share of total loan and bond transactions [3] in Singapore remains modest at less than 5%, reflecting the significant opportunity for growth.  

2.      MAS does not have data on SMEs’ take-up of green and sustainability-linked loans. But we do know that Singapore-based banks have been stepping up on such lending. Notable examples include a SGD 27 million ten-year sustainability-linked loan structured by DBS to Chew’s Agriculture in 2019; and a SGD 14 million green loan from UOB to LYS Energy Group, a home-grown independent solar power producer, earlier this year. 

3.      We are taking further steps to promote green and sustainability-linked loans to SMEs. One possible solution is to develop lending frameworks that provide simplified processes and set out clear standardised criteria for borrowers. With these frameworks, there would be no need to engage external reviewers to develop, verify and maintain customised green finance frameworks for each borrower. HSBC’s Green Loan Framework for SMEs, which was launched in Singapore in March 2020, is a promising start and MAS will encourage more lenders to develop such frameworks.

4.      MAS will also help borrowers defray the cost of customised green and sustainability-linked loans. Later this year, MAS will launch a Green and Sustainability-Linked Loan Grant Scheme which will be open to SMEs and other corporates [4] . This grant will defray the cost of obtaining independent external reviews to demonstrate that sustainability targets are material, and to verify that the loan proceeds will be channeled to green and sustainable activities.

5.      As green and sustainable finance activities grow in Singapore, the anchoring of relevant capabilities here will help to bring such loans into the mainstream while encouraging more SMEs to adopt green and sustainability financing.

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1. [1] Green loans refer to loans where the loan proceeds can only be used for green projects while sustainability-linked loans allow corporates to use the loan proceeds for general corporate purposes. There is no reduction in loan interest rate for green loans, unlike sustainability linked loans where corporates are rewarded with some reduction in loan interest rate if their sustainability targets are met.

1. [2] Green and sustainable bonds grew 370% from 2018 volumes, while green and sustainability-linked loans grew 270% from 2018 volumes.

1. [3] Green and sustainable bonds comprise 5% of Singapore’s bond market, while green and sustainability-linked loans comprise 0.5% of our loan market.

1. [4] Corporates, financial institutions and international organisations (e.g. International Finance Corporation) would be eligible to apply for the scheme.