Association of Banks in Singapore releases guidelines on responsible financing

The guidelines comprise three main elements - disclosure of senior management's commitment, internal controls that support responsible financing, and raising staff awareness on environmental, social and governance issues.
Nicole Tan Channel NewsAsia 8 Oct 15;

SINGAPORE: Companies with poor environmental practices will find it harder to get financing in future, as banks in Singapore will soon incorporate environmental, social and governance (ESG) criteria in their lending and risk assessment.

Amid the recent backdrop of hazy skies, there have been calls for banks to play their part by making sure the companies they lend to behave responsibly.

The latest set of guidelines released by the Association of Banks in Singapore (ABS) on Thursday (Oct 8) comprise three main elements - disclosure of senior management's commitment, internal controls that support responsible financing and raising staff awareness on ESG issues.

Said the director of ABS Ong Ai Boon: "This set of guidelines is not a silver bullet. We cannot guarantee that in the short term, it will solve this haze problem. Nevertheless, over the long term, with all these ESG criteria in the lending policies of banks, it will moderate and it must transform the operating procedures of the customers of banks. Hence, we hope that in the near future, these issues can be resolved with the concerted effort of all the stakeholders."

The ESG standards cover not just environmental practices, but also include labour standards, health and safety as well as corporate ethics and integrity.

As Singapore is a major Asian financial centre, the new governance criteria will have an effect on companies across the region. Observers have said that some banks already have sustainable lending practices in place and these standards can help formalise them. Overall, they said that it can help encourage more sustainable development, as banks have a central role in shaping responsible actions from their clients.

Ms Jeanne Stampe, Asia Finance and Commodities Specialist at WWF International, said: "If the cost of and access to capital is tied to sustainability performance, and you have banks that have sector policies in place, it effectively starves the fire of the fuel, because operators will find that they are locked out of certain pools of capital.

“All banks typically look to syndicate part of their loans especially the larger loans. If you have some of the larger banks not wishing to lend to a particular operator who is refusing to accept ESG covenants in the loan agreement, then the smaller banks may decide that they do not have such policies and take on the client, (but) will find themselves saddled with the entire loan, they can't syndicate it out."

In response to queries, the three local banks said they are strengthening policies to comply with the new standards. Some said they will reassess or even refuse financing to companies that are in breach of standards.

Going forward, banks in Singapore will be expected to disclose the senior management's commitment to responsible financing in their 2015 Annual Report. ABS said it hopes to see the banks fully comply with the guidelines by 2017.

The Monetary Authority of Singapore said in a statement that it welcomes the guidelines, and it will work with ABS to monitor the adoption and implementation of the guidelines.

- CNA/ms


Banks roped in to fight against haze with new financing guidelines
ANGELA TENG Today Online 8 Oct 15;

SINGAPORE — The Association of Banks in Singapore (ABS) today (Oct 8) issued guidelines on responsible financing, roping in lenders here in the fight against the haze as well as other environmental and social challenges.

To help Singapore’s banking sector support sustainable development, the guidelines incorporate environment, social and governance (ESG) criteria into the banks’ risk assessment and lending decision-making process, as well as drive greater transparency and accountability on ESG issues, the ABS said.

The guidelines call on the banks to provide disclosure of senior management’s commitment to responsible financing, integrate governance and build capacity on responsible lending among banking staff through training and seminars.

Banks will share their vision on responsible financing in their annual reports and publish their ESG policy framework in 12 to 18 months’ time. They will also implement robust governance systems by 2017.

Eight banks have expressed their commitment to the efforts, including Singapore’s three local lenders — DBS, UOB and OCBC — and HSBC, Standard Chartered, Citibank, ABN Amro and Deutsche Bank.

The guidelines follow the Transboundary Haze Pollution Act 2014, which came into effect last month. Early this year, the ABS formed a task force together with several banks to develop a set of industry guidelines on responsible financing.

“It is a social issue, a responsible financing issue. And as financiers, we want to be seen to be responsible to the environment, to society and to have good governance,” said ABS director Ong-Ang Ai Boon.

While the guidelines have no legal teeth, she said peer pressure will keep the lenders in line as “no bank would want a reputational risk. Banks are very sensitive to negative reputation”.

On the haze crisis, she said: “There are many stakeholders involved, and banks are important stakeholders as financiers… This set of guidelines is not a silver bullet to solve the haze problem. Many people may think that banks should stop financing companies (that contribute to the haze), but it is not a guarantee for a short-term solution.”

“It is more important for banks to keep on engaging with the agricultural and forestry industries, all these stakeholders on their financing, talk to the management, give them road maps in order to cause them to change their operating patterns,” she added.

Both UOB and DBS said they would reassess banking relationships with clients who do not meet the ESG standards.

“As part of UOB’s credit and risk assessment practice, the bank expects companies to meet prevailing regulatory standards. The companies should ensure that their operations meet key ESG guidelines and standards,” said Mr Frankie Phua, UOB’s managing director of Country and Credit Risk Management.

“If a company is found to have breached the standards, we will reassess the relationship with the client.”

The Monetary Authority of Singapore welcomed the move by ABS.

“The guidelines are a step forward to enhance responsible financing by financial institutions (FIs). FIs have a role to play in supporting efforts to promote sustainable development. MAS will work with ABS to monitor the adoption and implementation of the guidelines,” said an MAS spokesperson.

The Singapore Institute of International Affairs (SIIA) called the ABS move a timely one. “The haze pollution that Singaporeans and many in our neighbouring countries are suffering now is in part due to the availability of easy financing options for plantation groups. The environmental impact of their business practices, for a long time, is rarely a determining factor in the credit approval process.

“Singapore is a major financial hub and our three local banks have high exposure to the palm oil, and pulp and paper sectors. Unchecked expansion in these two sectors has contributed much to the haze problem… Hence, while Singapore is a victim of haze, it is also a key financier of haze. Business cannot remain as usual and we are heartened that ABS is sending the right signal,” SIIA said.