The Monetary Authority of Singapore (MAS) announced today the launch of the Green and Sustainability-Linked Loan Grant Scheme (GSLS), which will be effective as of 1 January 2021. The first of its kind globally, the GSLS seeks to support corporates of all sizes to obtain green and sustainable financing by defraying the expenses of engaging independent service providers to validate the green and sustainability credentials of the loan. The grant also encourages banks to develop green and sustainability-linked loan frameworks to make such financing more accessible to small and medium-sized enterprises (SMEs).
2. The GSLS will enhance corporates’ ability to obtain green and sustainability-linked loans. The grant will cover expenses incurred by corporates to engage independent sustainability assessment and advisory service providers to develop green and sustainability frameworks and targets, obtain external reviews (which includes a second party opinion, verification, certification or rating), and report on the sustainability impact of the loan. MAS will defray up to S$100,000 of these expenses per loan.
3. The GSLS will also encourage banks to develop frameworks for green and sustainability-linked loans. The grant will cover expenses incurred by banks to engage independent sustainability assessment and advisory service providers to develop frameworks, obtain external reviews, and report on the allocated proceeds of loans originated under the framework. MAS will defray up to 60% of these expenses, capped at S$120,000 for such green and sustainability-linked loan frameworks.
4. MAS will also defray by 90% the expenses incurred by banks to develop frameworks specifically targeted at SMEs and individuals, capped at S$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.
5. MAS will expand the scope of the existing Sustainable Bond Grant Scheme (SBGS) to include sustainability-linked bonds, effective immediately. Beyond grant support for pre-issuance costs which have been covered under SBGS since 2017, the enhanced SBGS will now cover the post-issuance costs of engaging independent sustainability assessment and advisory service providers to obtain external reviews or report for bonds under the scheme.
6. The GSLS is an initiative under MAS’ Green Finance Action Plan , and will support MAS’ aim to develop green and sustainable financial markets and products to support Asia’s transition to a low-carbon future. The grant will help to channel more financing towards green projects and enhance corporates’ sustainability practices. To promote the transparency and integrity of green and sustainable financing flows, MAS will require corporates to engage independent sustainability assessment and service providers and obtain independent external reviews on these loans to demonstrate alignment with internationally-recognised standards.
7. Accompanying the launch of the GSLS, BNP Paribas, OCBC Bank and UOB have introduced innovative green and sustainability-linked loan frameworks that will qualify for the scheme. The banks’ frameworks feature standardised criteria and processes, which will streamline assessments of green and sustainable lending to corporates, and support the banks’ clients, including both SMEs and large corporates, in financing circular economy projects [1] , renewable energy, energy efficiency activities, and promote sustainable supply chain practices. Through these frameworks, the banks seek to direct financing to activities that promote sustainable development in Singapore and the region.
8. Mr Ravi Menon, Managing Director of MAS, 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.”
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Notes to Editor:
- Green loans are any type of loan instrument made available exclusively to finance or re-finance, in whole or in part, new and/or existing eligible green projects, as defined by the Green Loan Principles which were launched by the Loan Market Association (LMA), Asia Pacific Loan Market Association (APLMA) and Loan Syndication Trading Association (LSTA) in March 2018. The Green Loan Principles serve as a high-level framework to guide the origination of green loans and provide a consistent methodology to identify and structure these loans.
- Sustainability-linked loans are any type of loan instrument which incentivise the borrower’s achievement of ambitious, predetermined sustainability performance targets (SPTs). This is achieved through aligning the loan terms to the borrower’s performance against these SPTs – for example, borrowers are rewarded with a reduction in the loan interest rate if their SPTs are met. Unlike green loans, there are no restrictions on the use of proceeds for sustainability-linked loans, and they can be used for general corporate purposes. This definition is adopted by the Loan Market Association’s Sustainability Linked Loan Principles , which were launched in March 2019 by the LMA, APLMA and LSTA. The principles serve as a high-level framework to guide the origination of sustainability-linked loans and provide market participants with a clear understanding of the characteristics of these loans.
- Green and sustainability-linked loan frameworks refer to frameworks that spell out clear, streamlined criteria for banks to evaluate green and sustainable finance transactions. These frameworks align with the core components of the Green Loan Principles and Sustainability Linked Loan Principles, and detail the bank’s processes in evaluating eligible green and sustainable projects and activities that are submitted by corporates, in providing corporates with green and sustainable financing. Each bank has the discretion to develop and set parameters for their own framework.
- [1] Circular economy focuses on designing waste out of the resource ecosystem and maximising the value of resources by keeping them in use for as long as possible.
