Singapore rolls out world's first green and sustainability-linked loan grant scheme
Singapore has taken another step towards its ambition to be the green finance hub of Asia.
In 2019, the Monetary Authority of Singapore (MAS) declared that it will launch a US$2 billion programme to accelerate the growth of Singapore's green finance ecosystem.
Rather significantly for the loan market, on 24 November 2020, the MAS launched the world's first green and sustainability-linked loan grant scheme which will be effective from 1 January 2021 (the "Grant Scheme").
Why is this interesting?
Higher costs have often been cited as one of the impediments to the expansion of sustainable financing amongst corporate borrowers.
These costs are incurred as external reviews are often required to align and ensure on-going compliance with internationally recognised green or sustainability-linked principles.
The Grant Scheme is intended to incentivise corporates to move towards more responsible financing by defraying some of the costs incurred to validate the green and sustainability credentials of loans.
Who should read this article?
All companies or banks based onshore or offshore that intend to participate in or develop a framework for green or sustainability linked loans.
The entities specified above in italics are eligible for the Grant Scheme.
What is covered in this article?
We provide a summary of the key details of the Grant Scheme and highlight a few interesting aspects of the scheme's parameters.
The Grant Scheme
The Grant Scheme comprises of 2 separate tracks for companies and banks respectively.
What does the grant scheme cover | grant amount | |
---|---|---|
Track A – Green & Sustainability Linked Loans |
Expenses incurred by companies 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. The loan must be a minimum of S$20 million (c.US$15 million) with a minimum tenure of 3 years. |
MAS will defray up to S$100,000 (c.US$75,000) of these expenses per loan over a 3-year period |
Track B – Green & Sustainability Linked Loan Frameworks |
Expenses incurred by banks to develop frameworks for green and sustainability-linked loans. The grant will cover expenses incurred 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. |
Tier 1: for frameworks targeted at SMEs1 and individuals, MAS will defray up to 90% of these expenses, capped at S$180,000 (US$135,000) over a period of 3 years. Tier 2: for others, MAS will defray up to 60% of these expenses, capped at S$120,000 (US$90,000) over a period of 3 years. |
How to do you apply?
MAS has specified that interested applicants may apply by contacting: fsdf@mas.gov.sg.
Additional scheme parameters
Although all companies or banks based onshore or offshore are eligible to apply for the Grant Scheme, applicants must also satisfy all of the following requirements which each contain a strong Singapore nexus.
For Track A of the Grant Scheme (Note: there are requirements which the bank must fulfil even though the grant is meant to defray expenses incurred by the corporate borrower):
- the bank must ensure that at least 50% of the gross revenue from the loan is attributable to Financial Sector Incentive (FSI) companies. These refer to licensed financial institutions such as large universal banks, fund managers and capital market players who are recipients of MAS' Financial Sector Incentive Scheme;
- the bank must ensure that the assessment work of the green or sustainability-linked aspects of the loan is performed in Singapore; and
- at least 50% of gross revenue from the sustainability assessment and advisory work must be attributable to Singapore based providers.
For Track B of the Grant Scheme:
- the bank must ensure that the assessment work of the green or sustainability-linked aspects of loans originated under the framework is performed in Singapore;
- the bank must ensure that the design and conceptualisation of the framework is performed in Singapore; and
- at least 50% of gross revenue from the sustainability assessment and advisory work must be attributable to Singapore based providers.
In addition to the above, there are also external review requirements for both tracks, details of which can be found here.
Final summary
The Grant Scheme defrays the costs of engaging independent service providers to validate the green and sustainability characteristics of the loan.
It also further pushes banks to develop green and sustainable lending frameworks to make such financing more accessible to corporates including SMEs.
This is a significant opportunity for corporate borrowers to transition towards more sustainable financing practices while enjoying the benefits of a Singapore Government incentive scheme.
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ADT: The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying it to specific issues or transactions.