Green Loans: Why Businesses Should Care About Them

Passionate about both your business and the environment? Find out what green and sustainability-linked loans entail and how your business could benefit from MAS’ newly announced green grant.  

Green Finance is an increasingly important enabler for businesses’ sustainability efforts, both locally and internationally. The Monetary Authority of Singapore (MAS) recognises that and that’s also why it launched the Green Finance Action Plan last year in a bid to support a more sustainable Singapore. 

As it stands, there are differences between green loans and sustainability-linked loans. To set themselves up for success, businesses should know exactly what green loans and sustainability-linked loans are. 

The newly announced Green and Sustainability-Linked Loan Grant Scheme will come in handy regardless of the size of the company, too. It is the central bank’s hope that the new scheme will encourage more corporations and businesses to build a greener world in their own unique ways.

• What are green loans?
• What are sustainability-linked loans?
• New green loan grant scheme by MAS
• Why your business should push for green initiatives
• How to apply for green loans

What are green loans?

Green loans are loans that are made available exclusively to help finance new or existing green projects, in whole or in part, as defined by the Green Loan Principles. The green loan market exists to facilitate and support environmentally sustainable economic activities. 

Some examples of green loans? Earlier in mid-May this year, GuocoLand Limited secured a whopping $730 million green club loan from OCBC Bank, DBS Bank and ICBC Singapore Branch for the construction of a new luxury Tan Quee Lan Street residential-cum-commercial development. Proceeds from the loan will finance the ambitious project which involves efforts like energy and water conservation, sustainable development, along with the adoption of immersive urban greenery and landscaping. 

Back in September, healthcare firm The Farrer Park Company secured a $120 million green loan from UOB to refinance its integrated healthcare and hospitality complex, Connexion. The green loan is a nod of approval to The Farrer Park Company’s commitment to be environmentally responsible in its operations.

What are sustainability-linked loans?

Sustainability-linked loans offer incentives for borrowers to achieve ambitious, predetermined sustainability performance targets. This is made possible by aligning the loan terms to the borrower’s performance against these sustainability performance targets. For instance, borrowers may be rewarded with a cut in the loan interest rate if their sustainability performance targets are met. Sustainability-linked loans do not have particularly strict restrictions on its usage unlike green loans — they can be used for general corporate purposes. 

An example of sustainability-linked loans? CapitaLand secured a four-year $500 million sustainability-linked loan from UOB in late May this year. This sustainability-linked loan is linked to CapitaLand's achievements in the Global Real Estate Sustainability Benchmark (GRESB). If CapitaLand is able to maintain or improve its rating on the benchmark, the corporation can look forward to obtaining interest savings.

MAS’ Green and Sustainability-Linked Loan Grant Scheme (GSLS)

The newly announced Green and Sustainability-Linked Loan Grant Scheme (GSLS) by the Monetary Authority of Singapore (MAS) will go into effect starting 1 January next year. A first of its kind both locally and worldwide, the GSLS is welcome news for businesses regardless of their sizes: Companies will soon have access to greater support when it comes to obtaining green and sustainable financing. 

That’s not all. MAS will also be providing banks with grants if they were to craft frameworks — including frameworks specifically targeted at SMEs and individuals — that provide standardised criteria and processes for green and sustainable financing so that such financing is more accessible to all stakeholders. 

Here’s a quick overview of the newly announced Green and Sustainability-Linked Loan Grant Scheme:

• MAS will defray up to $100,000 per loan of a borrower’s expenses in validating the green and sustainability credentials of a loan over a three-year period.
• MAS will defray up to 60% of the banks’ expenses, capped at $120,000 per framework, when they develop green and sustainability-linked loan frameworks that provide standardised criteria and processes for green and sustainable financing so that such financing is more accessible to SMEs.
• MAS will defray up to 90% of the banks’ expenses, capped at $180,000 per framework, when they develop green and sustainability-linked loan frameworks specifically targeted at SMEs and individuals so that green and sustainable financing is made more accessible.

On businesses and banks’ end, costs are incurred to engage independent sustainability assessment and advisory service providers to develop green and sustainability frameworks and targets. Costs are also incurred when obtaining external reviews and when reporting on the sustainability impact of the loan or on the allocated proceeds of loans originated under the framework.

MAS’ two-pronged approach at providing grants to businesses and banks strives to encourage more SMEs and individuals to integrate sustainability considerations into their financing decisions, ultimately working on more green, sustainable-driven projects that are friendlier to the Mother Earth and the environment.

Why businesses should push for more green, sustainable initiatives

Every little step towards building a greener, low-carbon, more resilient and sustainable future counts and MAS knows that. MAS is backing large corporations and SMEs in their sustainability endeavours by making green loans and sustainability-linked loans more accessible regardless of their sizes. Companies truly have no reason not to play their part in supporting Asia’s pivot towards a greener future. 

Not only does Green Finance fuel the economy, but also it shapes investment decisions and drives responsible action. As businesses take steps to push for more green, sustainable initiatives, they are simultaneously building a better branding for themselves and doing good for the planet — a win-win situation for all, don’t you think?

How to apply for green loans and sustainability-linked loans

Corporations and SMEs looking to apply for green loans and sustainability-linked loans can do so with the major banks and financial institutions in Singapore, such as DBS, UOB, OCBC, HSBC and BNP Paribas. 

To start, corporations and SMEs need to contact the bank either by filling out the contact form on their business banking website or emailing them. 

Banks and financial institutions will evaluate applications for these loans to determine whether or not they will extend the green or sustainability-linked loans to businesses and corporations. There will be frameworks and metrics guiding these processes, such as types of sustainable or green activities or projects the businesses are engaging in. Keep in mind that these may vary from bank to bank.

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