Financial Benefits For SMEs To Take A Green and Sustainability-Linked Loan

2020 may be the year that a pandemic sweeps across the globe. But the Earth that we inhabit has, for many decades, been plagued with a greater global crisis: climate change.  As (some) world leaders and activists find ways to tackle this climate disaster, it remains an uphill task in reducing global average temperatures since human emissions of carbon dioxide and other greenhouse gases are the primary driver of climate change. 

Businesses form a large part of human activity and it is no surprise to see climate change on the top of the agenda at the World Economic Forum in Davos held early this year. Just like rising temperatures, the heat is on business executives, financiers and thought leaders to show they are part of the solution to one of the world’s most challenging issues our generation is facing.

As large industrial businesses start implementing measures to reduce their carbon footprint, can smaller businesses be more sustainable too? The answer is yes. Plus there’s help. The Monetary Authority of Singapore (MAS) announced on Nov 24 that it is rolling out a new Green and Sustainability-Linked Loan Grant Scheme (GSLS) to help corporates of all sizes get more support in securing green and sustainability-linked loans. 

These two loans are available as a source of financing for firms across different industries to transition to more sustainable practices. However, adopting sustainability also means that a third party is required to access your business to ensure certain green principles are adhered to according to the policies outlined by MAS. All this costs money and it is no surprise that such expenses are normally not budgeted for. The GSLS was therefore launched to assist firms in defraying the expenses required to engage independent service providers to validate the green and sustainability credentials of their loan. 

The Green Loan helps to finance new or existing green projects, while the Sustainability-Linked Loan provides incentives to firms in achieving their sustainability performance targets. Here’s a breakdown of the two and how it’ll benefit SMEs in Singapore.

What Is A Green Loan?

Green loans are specific loans meant to finance green or sustainable projects. However, a business must meet certain conditions in order to be considered green. Known as the Green Loan Principles, they include:

Use of proceeds must have clear environmental benefits

The projects that are being financed by the loan must have clear environmental benefits, which will be assessed by the borrower. Examples of projects that have clear environments benefits include renewable energy products, green buildings, sustainable water and wastewater management. 

Projects must state clear environmental sustainability objectives

The borrower of a green loan must inform its lenders of the project’s environmental sustainability objectives and is required to disclose any green standards or certifications that the project is hoping to meet.

Dedicated account to manage proceeds

A dedicated account should be set up for green loans to be credited into. This is to maintain transparency and integrity of the loan monies being used for its purpose. Firms should also establish internal governance processes to track the usage of the funds. 


Information on the use of proceeds should be reviewed annually. All information such as the list of green projects, its impact, and amount allocated should be readily available and kept up-to-date. 

How Are Green Loans Different From Other Types Of Loans? 

A green loan is no different from a conventional loan, except that the loan must finance projects with a clear sustainability agenda that benefits the environment. 

An example of a project that took up a green loan is Allianz Real Estate and Gaw Capital Partners for DUO Tower and DUO Galleria, where green features such as double-glazed low-emissivity glass exterior, rainwater harvesting system and surrounding lush green landscape were incorporated into the building project. Eco-friendly office towers 7 & 9 Tampines Grande were also financed with green loans. 

What Is A Sustainability-Linked Loan?

Sustainability-linked loans are a type of loan that incentivises borrowers to achieve predetermined sustainability performance targets. For example, the loan interest rate is pegged to a series of environmental, social and governance performance metrics. If pre-determined targets are achieved, the interest of the loan will be reduced. Unlike green loans, no restrictions are placed on the use of proceeds for sustainability-linked loans, and they can be used for general working capital purposes. 

A local SME that took on a sustainability-linked loan is Chew’s Agriculture. The egg producer will enjoy lower interest rates if it meets Humane Farm Animal Care (HFAC) standards.

How Does The New Green And Sustainability-Linked Loan Grant Scheme (GSLS) Help?

With this new grant – which is effective from 1 January 2021 – MAS will help cover up to $100,000 over a three-year period of the expenses firms need to pay to engage independent sustainability assessment and advisory service providers. These providers develop green and sustainability frameworks and targets, obtain external reviews, and report on the sustainability impact of the loan.

By defraying the costs required to go green, MAS hopes to reduce barriers and make green financing more accessible for SMEs, thus encouraging more businesses to adopt sustainable business practices. Moreover, the GSLS is extended to banks to support them in developing frameworks specially targeted at SMEs and individuals. This is to encourage banks to provide greater support to SMEs. 

Why Your Business Should Consider Applying For The MAS Green And Sustainability-Linked Loan Grant Scheme (GSLS)

According to MAS, the GSLS is the first of its kind in the world, a commitment towards the green finance initiatives that Singapore is embarking on. At the same time as the launch of the scheme, three banks in Singapore – BNP Paribas, UOB and OCBC – also introduced green and sustainability-linked loan frameworks that will qualify for the scheme. The banks’ frameworks will help streamline assessments of green and sustainable lending and support businesses in financing circular economy projects, renewable energy, energy efficiency activities, and promote sustainable supply chain practices. 

If it was prohibitively expensive in the past or there were too many hurdles for your firm to cross in order to hop on the green bandwagon, perhaps it will be easier to do so now with financial assistance from MAS and banks in Singapore.

Today, consumers are also becoming more aware of the environmental impact of the products and services they buy. Similarly, investors, employees and governments are also more inclined towards firms not just with high profitability and growth, but also with sustainability in their corporate culture. Taking up a Green Loan or Sustainability-Linked Loan will highlight your company’s commitment towards the environment and sustainable business practices.

At the end of the day, climate change is everyone’s business, and it is the business of your business too. 

Need Financing Support During This Period?

From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.

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