A new loan structure by HSBC aimed at small- and medium-sized businesses in Singapore uses an annual sustainability assessment to determine borrowers’ cost of financing.
Like sustainability-linked loans (SLLs), firms that improve their scores throughout the tenure of their loan with HSBC may benefit from reduced interest rates. However, should borrowers’ scores decline, the rates on their loans may increase under HSBC’s new Sustainability Improvement Loan.
Businesses in the early stages of their sustainability journeys often find “conventional” SLLs beyond their reach, says HSBC in a Nov 21 announcement, “primarily due to limited resources for measuring and reporting their ESG performance”.
The HSBC Sustainability Improvement Loan links the interest margin to changes in borrowers’ sustainability assessments and ratings from EcoVadis, a Paris-headquartered corporate sustainability ratings provider. EcoVadis evaluates businesses’ performance across four areas: environment, labour and human rights, ethics and sustainable procurement.
HSBC has completed its first Sustainability Improvement Loan transaction here with Beyonics, a Singapore-headquartered Advanced Precision Engineering and Manufacturing player that develops solutions for the medical, automotive and technology sectors.
Proceeds from the facility will support the refinancing of existing debts, working capital requirements and general corporate expenses, says the bank.
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The Edge Singapore understands HSBC Singapore soft-launched the Sustainability Improvement Loan to SMEs earlier this year, including with the 21 local food manufacturers who had participated in the inaugural SME Sectoral Net Zero Transition Programme.
The Singapore Business Federation (SBF) and Bain & Company announced the eight-week decarbonisation and sustainable financing advisory programme in October, after a pilot run had concluded in August.
In addition to advisory and matchmaking services, participating SMEs are offered access to the AI-powered DecarboniSME tool. It provides SMEs with sector-specific materiality assessments to identify relevant emission sources, and reportedly generates “chief sustainability officer-quality” sector-specific decarbonisation strategies, pathways and targets.
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HSBC launched the Sustainability Improvement Loan in Hong Kong in September. The first Sustainability Improvement Loan transaction in Asia Pacific was closed with Opal Cosmetics, a personal care and beauty product supplier headquartered in Hong Kong.
HSBC is also currently offering the Sustainability Improvement Loan in the UK and the Middle East.
Priya Kini, head of commercial banking, HSBC Singapore, says: “We know that many smaller businesses in Singapore continue to face barriers to decarbonisation compared to the larger enterprises with dedicated resources and a wider range of financing solutions to make the transition. The new HSBC Sustainability Improvement Loan aims to bridge the gap by improving businesses’ access to financing solutions, enabling them to take the first step on their net zero transition journey. HSBC is now able to offer a wide range of funding solutions as well as sustainability transition tools to support businesses in Singapore across their corporate life cycle.”
