Framework being developed for banks to assess green practices of borrowers

Framework being developed for banks to assess green practices of borrowers

The Singapore Institute of International Affairs is working with the UN Environment Programme and the Monetary Authority of Singapore to come up with a framework on how banks can contribute towards green financing.

SINGAPORE: Financial institutions and banks in Singapore will get some guidance in understanding how they can contribute towards sustainable and green financing, such as assessing borrowers for their environmental practices before handing out loans.

Think tank Singapore Institute of International Affairs (SIIA) is working with the United Nations Environment Programme (UNEP) and the Monetary Authority of Singapore (MAS) to come up with a framework, under which banks can take steps to ask companies like those in the agroforestry industry for certification and more transparency.

This was announced on Thursday (Apr 6) by SIIA chairman Simon Tay at the fourth Sustainable World Resources dialogue held in Singapore.

For Singapore-listed companies, they will be asked whether they have published their sustainability reports to the Singapore Exchange under its “comply or explain” rule. This will set the standard for smaller investors, said Associate Professor Tay, adding that it will also signal a shift from blacklisting errant companies to greening the whole value chain.

“In our region, banks have traditionally lent purely for commercial reasons. They’re not lending maliciously, but some of them may be lending with a blind eye,” said Assoc Prof Tay.

To start the ball rolling, the Association of Banks in Singapore is helping local banks understand the issue better.

"How do you screen loans? How do you ask questions of companies involved so that you go beyond just simply the normal commercial issues to asking questions like fire (protection practices) and certification?” Assoc Prof Tay added.

The framework will also look at how to better finance companies that are doing the “right thing” through incentives like green bonds to encourage them to stay on the right track.

“We are a very large financial hub. If we can use and leverage that strength, it will have a larger impact - not only in Singapore but across the region,” he said.

ROLE OF THE PRIVATE SECTOR

Speaking at the dialogue, Environment and Water Resources Minister Masagos Zulkifli agreed that private sector financing will play an increasingly important role in promoting green practices.

“If private capital can be directed to projects that take environmental factors into account, projects that engage in unsustainable business practices will be starved of credit," he said. “This will help to gradually shift the business landscape towards more sustainable practices.”

However, the minister said getting the buy-in of companies and the banking sector is not enough.

This year’s dialogue also looked at how other stakeholders in the supply chain, like smallholders and small- and medium-sized enterprises, can manage their plantations in a more sustainable manner to ensure that the skies stay haze-free.

Mr Masagos said that governments and civil society which are able to foster greater environmental consciousness in people while pushing businesses for more transparency must continue to chip in.

“Major buyers should insist on purchasing from producers who subscribe to higher and more sustainable standards,” he said. “Finally, enlightened buyers who make the right choice can help to create added incentives, by encouraging producers to move towards sustainable practices.”

Source: CNA/ek

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