Massive fiscal stimulus to rebuild post COVID-19 offers green opportunities

OCBC Bank has set an ambitious new target of S$25 billion by 2025 for its sustainable finance portfolio, having surpassed its original S$10 billion target in the first quarter of 2020 – two years ahead of its 2022 schedule.

The bank has seen a significant increase in the demand for sustainable financing in recent years due to better awareness and heightened efforts to combat climate change. Natural disasters, including the Australian bushfires and heat waves in Japan and India in 2019 highlighted the urgency of the situation. Reports of lower pollution and clearer skies amidst COVID-19 quarantines and scaled-down business activities helped to draw even more attention to the environment.

Last year, OCBC Bank witnessed a strong demand for green and sustainability-linked loans. Of the more than 20 such loans that the bank participated in last year, it acted as sustainability advisor or coordinator for more than 10 of them. Good progress was also made in the financing of renewable energy projects, following the bank’s announcement in April 2019 that it would no longer finance new coal-fired power plants. In 2019, the bank participated in solar, onshore wind and offshore wind projects, in Taiwan, China, the United Kingdom, Australia and Malaysia.

Sustainable finance’s strong growth momentum is expected to continue over the next few years despite COVID-19. The United Nations has urged governments to view the pandemic as an opportunity to build a more sustainable economy. The European Union’s economic recovery package already has portions earmarked for green purposes. International Energy Agency’s recently released Sustainable Recovery Plan has laid out a US$3 trillion green recovery roadmap that can be taken over the next three years to revitalise economies and boost employment while making energy systems cleaner and more resilient.

The bank will focus on driving growth in the following two areas to reach its “25-by-25” target:

1. Industry diversification

While the property sector has been a leader in the sustainable finance space in the region, more industries are coming onboard. Renewable energy, clean transportation, education, water and waste management are industries with high growth potential, with government support playing a big role.

The bank has already made inroads into clean transportation and education. In January 2020, the bank expanded its sustainable finance portfolio to the transportation sector with an A$25 million green loan to ComfortDelGro Corporation for the financing of 50 hybrid buses in Victoria, Australia. In May 2020, it acted as green finance adviser for National University of Singapore’s green finance framework, which provides the overarching criteria and guidelines for NUS to enter into green finance transactions.

2. Geographical diversification

Singapore has been developing its capabilities as a regional sustainable finance hub, and businesses around the region – Myanmar, Malaysia, Taiwan, Hong Kong, Korea and Japan and Australia – are increasingly looking to tap on this expertise. OCBC Bank is poised to leverage its international network of branches and offices in these countries to expand the business.

In early 2020, the bank partnered Shwe Taung Group on Myanmar’s first green loan – a US$44 million green loan – to be used for the financing of Junction City Shopping Centre (Junction City), an integrated retail and commercial development in Yangon’s downtown.

In May 2020, OCBC Bank partnered telecommunications company Axiata Group Berhad on the first sustainability-linked Islamic financing undertaken in Malaysia worth US$800 million.  

The bank topped two sustainable finance league tables last year – Bloomberg’s 2019 Mandated Lead Arranger (MLA) league table for green loans and renewable energy loans, as well as the 2019 MLA league table for green loans and sustainability-linked loans by intelligence service Debtwire. Both league tables are for Asia Pacific (ex Japan).

Said Mr Mike Ng, Head of Structured Finance and Sustainable Finance, OCBC Bank, “The awareness and interest in sustainable projects has been increasing over the last few years, and COVID-19 has helped to draw attention to wider sustainability issues, including social ones. In the wake of the pandemic, the collective action taken by both the public and private sectors can help to rebuild economies in a more sustainable fashion.

Sustainable finance will therefore continue to be key and it is important for us to have this ambitious target that we as an organisation can strive towards. We believe our “25-by-25” target defines our commitment in addressing the challenges presented by climate change, and in contributing to the achievement of the United Nations Sustainable Development Goals. As our clients continue to incorporate sustainability into their business models and corporate strategies, we expect the sustainable finance momentum to gather even more pace. And with the further development of the sustainable finance ecosystem, we are confident that more industry players in the region will join us on this journey.”