ASEAN’s biggest banks bet on green real estate

SINGAPORE – Southeast Asia’s biggest banks rush to finance sustainability-linked construction projects, even as world’s most indebted real estate developer China Evergrande shocks the industry country real estate.

The biggest names in the region, including DBS Group Holdings in Singapore, Oversea-Chinese Banking Corp. and United Overseas Bank, as well as Malayan Banking in Malaysia, are jostling to support projects integrating environmental, social and governance objectives.

ESG objectives aim to oblige companies to adhere to certain ethical standards in their business activities, for example, ensuring that the environmental impact of a construction project is minimized from start to finish.

In Thailand, Asia Capital Real Estate, a private equity firm with offices in New York and Singapore, is developing an eco-friendly rental apartment complex in Phuket. The 505-unit project includes features such as solar panels and energy-efficient appliances.

Designed to meet green building standards set by the International Finance Corporation, a subsidiary of the World Bank, the project aims to reduce energy and water consumption by more than 40% compared to a conventional building.

He received a green loan of 675 million baht ($ 20 million) from UOB Thailand for the construction. Under the terms of the loan, the bank will record and monitor the management of the borrower’s funds, as well as the sustainability measures agreed with the company.

“Local communities will benefit from facilities that are environmentally friendly and promote the well-being of residents,” said Andy Cheah, Managing Director and Head of Wholesale Banking Services at UOB Thailand, of the expected ESG results of the project. .

In Singapore, City Developments and MCL Land announced in August that they had secured green loans worth S $ 847 million ($ 628 million) to finance two projects in the city-state as part of a joint venture. venture.

One is a condominium of approximately 630 residential units which will be equipped with solar panels to provide 30% of the energy consumed in the common areas.

This development will be funded by a SG $ 418 million green loan from UOB, with the other project supported by SG $ 429 million green loan financing provided by DBS, South Asia’s largest lender. East.

The DBS-funded development is a mixed-use project comprising around 400 apartments and commercial spaces, with green features such as energy-efficient equipment, as well as a pneumatic waste transport system.

“With sustainability increasingly at the forefront of corporate agendas, DBS is committed to supporting forward-thinking companies such as CDL and MCL Land in their ESG plans as we collectively work towards a low-emission future. carbon, ”said Chew Chong Lim, managing director and group head of real estate in the institutional banking arm of DBS.

Singapore’s real estate sector is still buzzing despite the Evergrande crisis, which is on the verge of default after missing a series of bond interest payments. The city-state’s banking system is not very exposed to the Chinese real estate sector, according to Tharman Shanmugaratnam, minister in charge of the Singapore Monetary Authority, the central bank and the city-state’s financial regulator.

Direct exposures represent less than 1% of non-bank lending, the minister said in an update to Parliament earlier this month.

“The loan exposures of our banking sector to the China Evergrande group itself are insignificant,” he said, adding that the authorities are closely monitoring any indirect or spillover effects on Singapore’s economy resulting from the developments. in China.

The city-state is quickly becoming an attraction for green real estate projects. Maybank, Malaysia’s largest bank, is part of a group of lenders who earlier this year provided a five-year green loan totaling SG $ 1.22 billion to refinance a mixed-use development managed by CDL in downtown Singapore. The OCBC of Singapore and the SMBC of Japan also participated in the funding.

The project features architectural features designed to harvest rainwater, as well as photovoltaic cells to convert sunlight into electricity.

“We have continued to move forward on sustainable finance initiatives,” said Yiong Yim Ming, CFO of CDL Group. “In doing so, we are channeling capital for better environmental outcomes and aligning with the expectations of the investment community for more sustainable developments. “

The global appetite for green loans has increased. Durable loans totaled $ 321.4 billion in the first half of this year, according to financial data provider Refinitiv, more than tripling levels from a year ago and setting a record for a first half. The second quarter saw a 35% increase over the first quarter of this year and marked the second straight quarter of more than $ 100 billion in loans.

But while the largest lenders in the Association of Southeast Asian Nations are in favor of financing environmentally friendly projects, they still have significant room for improvement in this area compared to to their Western peers. Refinitiv data showed that European borrowers accounted for 45% of sustainable loans in the first half of this year, with loans to the Americas accounting for 43% of that activity during the period. Asia-Pacific, excluding Japan, accounted for only 8% of the pie.

According to Moody’s Investors Service, financial services companies can maintain their credit standing by embracing a rapid but predictable transition to climate-friendly finance. On the flip side, rushing to take drastic large-scale measures to tackle climate change in the coming years could hurt the quality of loans and invested assets, the credit rating agency warned.

“Financial companies will lend and invest in green businesses and new technologies, as the transformation to a low-carbon economy creates vast financing opportunities,” said Alka Anbarasu, senior vice president at Moody’s.

As ASEAN banks catch up with their peers in Europe and the Americas, one of the challenges for lenders will be to avoid funding projects that engage in “greenwashing” – giving the false impression that development is respectful of the environment when reality does not. match.

“Compared to greenwashing consumer products, which are more tangible, financial products, such as assets, finance or even portfolios, are more complex to value,” said Professor Lawrence Loh, director of the Center for Governance and Sustainability at the National University of Singapore Business School.

“It is difficult for investors or regulators to ‘lift the veil’ on these products, especially to verify claims. They almost exist in a ‘black box’.”

New companies are emerging to meet this need for verification. Fintech startup STACS aims to provide a platform to help banks measure a project’s carbon emissions and other environmental criteria.

“Data pools [lenders] are also fragmented, with tailor-made methods across different industries and markets, making it virtually impossible for banks to accurately measure end-to-end carbon emissions today, ”said co-founder and CEO Benjamin Soh.

“The birth of many environmentally friendly projects is increasing, which allows this sector to be lucrative for banks to finance,” he added. “Much more effort is needed to work together in a concerted manner to promote better green finance. “

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