The region’s biggest names, including Singapore’s DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank, as well as Malaysia’s Malayan Banking, are jostling to support projects that incorporate environmental, social and governance objectives (ESG).
ESG goals are meant to hold companies to certain ethical standards in their business activities, for instance, ensuring that the environmental impact of a construction project is minimised from inception to completion.
In Thailand, Asia Capital Real Estate, a private equity firm with offices in New York and Singapore, is developing an environmentally friendly rental apartment complex in Phuket. The 505-unit project boasts features such as solar panels and energy-efficient appliances.
Designed to meet green building standards set by the International Finance Corporation, a World Bank subsidiary, the project aims to achieve a more than 40% reduction in energy and water use compared with a conventional building.
It has received a US$20 million green loan from UOB Thailand for construction. Under the terms of the loan, the bank will record and monitor the borrower’s management of funds, as well as track sustainability metrics agreed upon with the company.
“Local communities will benefit from facilities that are environmentally friendly, and which promote the well-being of residents,” said Andy Cheah, managing director and country head of wholesale banking at UOB Thailand, on the project’s expected ESG outcomes.
In Singapore, City Developments and MCL Land announced in August that they had secured green loans amounting to US$628 million to finance two projects in the city-state under a joint venture.
One is a condominium with around 630 residential units that will be equipped with solar panels to supply 30% of the power consumed in common areas.
This development will be bankrolled through a SG$418 million green loan extended by UOB, with the other project supported by a SG$429 million green loan financing package provided by DBS, Southeast Asia’s largest lender.
The DBS-financed development is a mixed-use project comprising around 400 apartments and commercial retail space, with green features like energy-efficient fittings, as well as a pneumatic waste conveyance system.
“With sustainability increasingly being at the forefront of corporate agendas, DBS is committed to supporting forward-thinking companies such as CDL and MCL Land with their ESG plans as we collectively work towards a lower-carbon future,” said Chew Chong Lim, managing director and group head of real estate at DBS’ institutional banking arm.
Singapore’s property sector is still buzzing despite the crisis at Evergrande, which is teetering on the brink of default after missing a series of bond interest payments.
The city-state’s banking system does not have large exposure to China’s real estate industry, according to Tharman Shanmugaratnam, the minister in charge of the Monetary Authority of Singapore, the city-state’s central bank and financial regulator.
Direct exposures are less than 1% of nonbank loans, the minister said in an update to parliament earlier this month.
“Our banking sector’s loan exposures to China Evergrande Group itself are insignificant,” he said, adding that authorities are keeping a close watch on any indirect or spillover effects on the Singapore economy arising from developments in China.
The city-state is fast becoming a draw for green real estate projects.
Maybank, Malaysia’s largest bank, is among a clutch of lenders that earlier this year extended a five-year green loan totalling SG$1.22 billion to refinance a mixed-use development managed by CDL in downtown Singapore.
Singapore’s OCBC and SMBC of Japan also took part in the financing.
The project has architectural features designed to harvest rainwater, as well as photovoltaic cells to convert sunlight into electricity.
“We have continued to advance on sustainable financing initiatives,” said Yiong Yim Ming, CDL’s group chief financial officer.
“By doing so, we are channeling capital to achieve better environmental outcomes, and aligning with the expectations of the investment community for more sustainable developments.”
Global appetite for green loans has surged. Sustainable lending totalled US$321.4 billion in the first half this year, according to financial data provider Refinitiv, more than tripling year-ago levels and setting a record for a first half.
The second quarter saw a 35% increase versus the first quarter of this year and marked the second consecutive quarter of more than US$100 billion in loans.
But while the largest lenders in Asean are warming to the idea of bankrolling eco-friendly projects, they still have significant room to grow in this area compared with their peers in the West.
Refinitiv’s data showed that European borrowers accounted for 45% of sustainable lending during the first half of this year, with lending in the Americas accounting for 43% of such activity during the period. The Asia-Pacific, excluding Japan, made up just 8% of the pie.
According to Moody’s Investors Service, financial services companies can preserve their credit quality by adopting a rapid but predictable shift toward climate-friendly finance.
On the other hand, rushing to take large-scale, drastic action to address climate change in later years could hurt the quality of loans and invested assets, the credit rating agency warned.
“Financial firms will lend to and invest in green businesses and new technologies as the transformation to a low-carbon economy creates vast financing opportunities,” said Alka Anbarasu, senior vice president at Moody’s.
As Asean banks play catch-up with their peers in Europe and the Americas, one challenge for lenders will be to avoid bankrolling projects that engage in “greenwashing” — giving a false impression that development is eco-friendly when the reality does not match up.
“Compared to greenwashing in consumer products, which are more tangible, financial products, such as assets, financings or even portfolios, are more complex to evaluate,” said professor Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore Business School.
“It is difficult for investors or regulators to ‘lift the veil’ on these products, particularly to verify the claims. They almost exist in a ‘black box.'”
New companies are stepping forward to meet this need for verification. Fintech startup STACS aims to provide a platform to help banks measure a project’s carbon emissions and other environmental criteria.
“The pools of data (lenders) rely on are also fragmented, with bespoke methods in different industries and markets, making it virtually impossible for the banks to accurately measure end-to-end carbon emissions today,” said co-founder and managing director Benjamin Soh.
“The birth of many eco-friendly projects is on the rise, allowing this to be a lucrative sector for banks to bankroll,” he added. “A lot more effort is required to work together concertedly to push for better green financing.”