Fundamentals of Sustainable Finance and the role of SMEs

Sustainable companies are more likely to save costs by using fewer resources, win contracts, have less regulation, attract and retain the best talent pool and avoid losing money on old carbon-intensive processes, according to research by McKinsey.

An absolute win-win.

The fundamentals of Sustainable Finance

Environmental, social and governance (ESG) deliberations have come to tower many investment decisions in recent years. This has directly translated into ways to invest money such that it elicits the planet to be a finer place. 

Welcome to the world of sustainable finance.

Sustainable finance has a fundamental role to play in the world’s transition to net zero by channeling private money into carbon-neutral projects.

Financial institutions (FIs) play a consequential role in promoting sustainability and combating climate change by directing capital to sustainable projects and actively engaging in influencing changes in their clients’ businesses. 

For marginally bankable but worthy green projects, or in areas where the scope of funding is ample, public-private partnerships play an essential role in de-risking and crowding in more private sector financing; As well as aiding the planet and making society fairer and more inclusive, evidence shows that sustainable businesses offer higher returns for investors.

Singapore Landscape

The drive to sustainability is altering the way we live. And Singapore has been at the forefront of this. The country strongly endorses the transition to a low-carbon, more resource-efficient, sustainable economy. 

It is now ASEAN’s most extensive sustainable finance market, accounting for close to 50% of cumulative ASEAN green and sustainability-linked bond and loan issuances.

Progressively, Singapore launched its Green Finance Action Plan (GFAP) in 2019, taking advanced steps to implement and build a financial system supporting sustainable growth.

The policymakers, especially MAS (Monetary Authority of Singapore), have made good progress on sustainability endeavors in its financial sector's reserves management, physical operations, and financial development and supervision.

One such endeavor aimed to reduce the organizational carbon and environmental footprint. The body developed a framework for and decreasing emissions from business air travel and embarked on measures further to reduce its upstream and downstream emissions from currency operations.

But enterprises cannot do it all. A focus on individuals and SMEs is key to driving sustainability, after all, the effort and approach has to be "collective bottom-up". 

SME and Sustainable Financing

Sustainable finance can be a powerful enabler for an effective yet inclusive transition to net-zero. 

However, the scale of the investment challenge is beyond the capacity of the public sector alone. The financial industry plays a pivotal role in reaching those goals. It can:

• re-orient investments toward more sustainable technologies and businesses
• fuel growth in a sustainable manner over the long-term
• partake and contribute to the creation of a low-carbon, climate resilient and circular economy

Products for SMEs

When it comes to ESG, banks in Asia-Pacific are at the evolving stage - i.e building new products. At home in Singapore, our banks and FIs push into the following segments to support the SMEs :

• Individual green loans

Although the volumes are smaller, the margins slimmer and, much like with trade finance, it is harder to ensure that every element of the process is green, but individual green loans are finally seeing the light of the day. 

Of course, the process of validation of every stage can be arduous given the amount of due diligence required to put such financing packages together, but a focus on the individual is key to driving sustainability.

• Small-ticket green loans for SMEs

All major domestic banks, including neobanks and FI like banco, have been pushing into the green retail and SME loans market. The target of course is to support the individual investors and SMEs and focus on green trade finance, real estate and the circular economy.

• Solar Financing

A nation that runs on Aircons, a solar financing program is pleasantly picked up by individuals and builders alike. It includes cash management, green funding for solar project developers, and end-to-end contract-based financing for procurement, engineering, construction and commissioning contractors.

• Green Vehicle Loans

These support programs links the electric vehicle (EV) value chain, from automotive brand owners, car dealers and charging point operators to end-users, and offers trade financing, dealer stock financing and green car loans. 

The Future beckons

To develop a vibrant green finance ecosystem, Singapore has intensified efforts to be a regional knowledge and talent hub for sustainable finance by anchoring a third Centre of Excellence and setting out Sustainable Finance Technical Skills and Competencies. The country has also launched pilot programmes for the ESG Disclosure Platform and ESG Registry under Project Greenprint, to catalyse sustainability data flows between the real economy and the financial sector.

RABC group in support of this vision of its home country is launching bancoX. 

bancoX, aims to bridge the gap between business owners and sustainability suppliers by providing a one-stop B2B Marketplace for green equipment and carbon credits.

Designed to power the small and medium enterprises to make a real impact for better future, bancoX allows businesses to obtain industry best practices, source certified green equipment, and explore finance options to support the sustainability journey.

bancoX aims to move the notion of sustainability from awareness to action as business responsibility and accountability create a resilient and sustainable future for the community in the long term. 

We are here to enable and champion your business towards NetZero goals. Let's create a better world for future generations together, after all there is no planet B.