In an effort to make green finance less costly and easier for small and medium enterprises (SMEs), HSBC Singapore is introducing a new green loan that will accept applications in accordance with Singapore industry certifications.
With the new green loan in place, there will no longer be a need for the usual green finance frameworks.
HSBC Singapore’s Head of Business Banking Ng Li Lian spoke to The Business Times on Monday (16 March) at the launch of the SME Green Loan. Mr Ng said, “We hear a lot of interest from SME clients in green loans, but we see limited action – this is not for want of trying, but comes down to accessibility… SMEs can’t afford the typical costs or time associated with green finance, with management teams already spread thin as they focus on the day-to-day running of the business.”
HSBC, among other banks, normally have corporates construct a bespoke green finance framework, following which green loans are applied for. This is so that the loan proceeds will be used in accordance with internationally recognised green standards. The framework, however, can cost “thousands of dollars and weeks of development” to obtain external reviews and assess entire business models, Ms Ng remarked.
Larger corporates could raise multiple green financing instruments such as green bonds and green loans under a single framework over several years, but for SMEs with less diverse funding requirements, the framework may not be as applicable.
As a result, the new loan will allow substantial cost and time saving without the need for green finance frameworks because “for SMEs, it’s the make or break in utilising green finance,” Ms Ng added.
The first of its kind in the Singapore market, as HSCB claimed, applications for the new green loans from businesses will be received by the bank after adhering to industry certifications such as (1) Singapore Environment Council – Singapore Green Labelling Scheme (SGLS) and eco-certification schemes; (2) Building and Construction Authority – Green & Gracious Award, and Green Mark Scheme (GoldPLUS and Platinum); (3) Singapore Green Building Council – product and services certification schemes; and (4) Green-e – Renewable Energy Certification.
The validity of the use of loan proceeds will be assessed by the certifications. HSBC will incorporate more into the list of accepted applications as more certifications are developed in Singapore.
At a minimum cap of US$350,000, the green loan will be issued on a term basis. The amount will be denominated either in US dollars or Singapore dollars. Applicants will undergo the usual credit-review process by HSBC.
There has been an increase green finance from SMEs, from firms that have become more aware of the need for sustainability in their business models as well as those looking to create new business models in light of the growth in environmental awareness.
Based on HSBC’s 2019 Navigator survey, 64 per cent of the 200 Singapore firms that responded, with half of them being SMEs, stated that they believe they have a part to play to realise the United Nations’ Sustainable Development Goals.
“Hundreds of companies are pursuing green initiatives, ranging from the development of green products (as governed by the SGLS schemes), green F&B outlets, as well as the purchase of lower-emission or energy-efficient equipment…Ultimately, every business has a part to play in transitioning to a low-carbon economy – we already have interest from clients in the electric vehicle, engineering or manufacturing, clean water and recycling sectors,” Ms Ng concluded.
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