More than a decade ago, green bonds paved the way for investments that could ultimately reach trillions of dollars in climate-related activities, including energy efficiency, renewable energy, and ecosystem protection and restoration. In 2021, Singapore joined the green bonanza by launching the Singapore Green Plan 2030. It is a movement to advance the national agenda on sustainable development, charting concrete targets over the next ten years and positioning to achieve its long-term goal of net zero emissions.
Green Finance Defined
Green finance is any form of structured financing (funding) that goes towards creating a better environment. It includes the full scale of loans, debt mechanisms, and investments. Projects in the following areas are examples of prime candidates for green finance:
- Renewable energy
- Energy efficiency
- Conservation of nature
- Pollution control
- Waste management
- Sustainable farming or resourcing
- Creation of a circular economy
Singapore & Its First Sovereign Green Bonds
As part of the strategies to support Singapore’s transition to a low-carbon future and its growth as a green finance hub, the government announced the inaugural sovereign green bond issuance amounting to SGD 35 billion by 2030. This signals the importance of green finance in Singapore and the anticipated growth of the country’s green finance market in the coming years.
What Companies Should Expect From Green Financing
The typical framework banks in Singapore use to evaluate “green projects” outlines eligibility and evaluation criteria, due diligence requirements, reporting principles, and verification procedures. The United Nations Sustainable Development Goals (UNSDG) are matched with a bank’s green financing framework. And for added legitimacy, some banks engage third-party research firms to examine their framework.
Banks frequently perform extensive due diligence on businesses to analyse, evaluate, and confirm that funding is disbursed to legitimate green projects. As consumers grow more environmentally conscious and the demand for sustainable or “green” products increases, this verification process is particularly crucial.
Even after the borrower company has been thoroughly screened, the lender bank usually requires the company to share any technical reports or feasibility studies with it. These will be drafted as obligations of the borrower company in the finance contracts. In order to regularly monitor the firm’s operations and compliance with their green financing framework, banks may also require that the borrower company disclose key “green” performance measures periodically.
Therefore, to ensure that borrower companies continue to comply with the bank’s green financing framework, they need to set up mechanisms to assess and monitor the environmental risks associated with their project, business, or utilisation of green financing.
Green Financing’s Benefit to Companies
A company’s commitment to sustainability and environmental issues will be strengthened by acquiring green financing, even though compliance costs are usually higher than regular financing.
Positioning a business to appeal to investors, stakeholders, shareholders, and customers is made easier by securing a “green” loan. In order to make green financing more accessible to small and medium enterprises (SMEs), grants are also being offered by the Monetary Authority of Singapore (MAS) under the Green and Sustainability-Linked Loans Grant Scheme. These grants will help cover the costs of hiring external consultants required to apply for a green loan.
Like green loans, green bonds provide funds committed to environmental or climate projects. While green loans are funded by banks, green bonds are financed by investors. Investing in green bonds can promote transparency between your company, investors, and customers. Contributing to green bonds can likewise help prevent greenwashing (a deceptive claim that a company is environmentally conscious but is not). You grow your company’s sense of trust instead of furthering your company’s assets – which in turn provides more opportunities for new clients or investors.
Many firms are working hard to demonstrate their environmental, social, and governance (ESG) commitment in accordance with the government’s push for sustainability and decarbonisation, and securing green financing is one way for a company to do so. Green financing helps to promote efficiency in ecosystems and future industrial production practices.
Going green is not new for businesses. Due to growing consumer awareness of green issues and ambitious business targets to be net zero by 2030, making efforts to be more sustainable is a necessity if businesses want to remain competitive. And while some companies may be concerned about the financial implications of becoming more eco-friendly, going green can be both profitable and ethical.
Incorporate a company now with the help of Corporate Services Singapore and adopt exemplary business practices geared towards long-term sustainable success.