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Nikkei Markets

More Singapore firms gain from sustainable investing trend

Target-linked loans could lower cost of capital, increase investor interest

The demand for sustainable investments has grown alongside concerns about pollution and global warming and issues such as inequality and empowering women.    © Reuters

SINGAPORE (Nikkei Markets) -- As demand for socially responsible investments grows, more Singapore companies are taking advantage of loans that link interest payments to improvements across a range of environmental and social measures.

Such deals allow companies to tap a new source of debt financing from investors who prefer to back companies that score highly when benchmarked against various environmental, social and governance, or ESG, targets.

Earlier this week, CapitaLand obtained a five-year, 300-million-Singapore-dollar ($217 million) multi-currency loan from Singapore's DBS Group Holdings with interest rates that could be lowered if the developer improves its ESG scores.

The sustainability-linked loan, the largest in Asia's real-estate sector, provides the Singapore property giant with new borrowing options as interest rates rise and debt market conditions tighten, broker RHB said in a report on Friday.

Unlike green bonds that can only be used to fund projects with defined environmental benefits, sustainability-linked loans can be used for any purpose by the borrower.

Yulanda Chung, head of sustainability at DBS's Institutional Banking Group, said ESG financing can cover a wide range of companies, including those involved with fossil fuels such as oil and gas, and chemicals and real estate.

"The key is to identify areas where we can help clients transition to more resource-efficient operations," she said.

Besides CapitaLand, other Singapore companies that have taken on sustainability-linked or green debt include City Developments, commodities trader Olam International and palm oil and sugar giant Wilmar International, which has faced numerous allegations in the past of failing to rein in suppliers who violate the environment and communities.

ESG funding can also be accessed on a project basis.

In August, Ho Bee Land, a mid-sized developer, secured its first green loan of 200 million pounds ($260.8 million) to fund the purchase of a commercial development in London.

The demand for sustainable investments has grown alongside concerns about pollution and global warming and issues such as inequality and empowering women.

According to a UBS report last month, the preference for socially responsible investments is stronger among women and younger investors who are rising in prominence in Asia as wealthy entrepreneurs hand the reins of their business empires to the next generation.

UBS said its survey of 5,300 high-net-worth investors in 10 countries showed 65% of these wealthy individuals believed sustainable investing was "highly important" to help create a better planet, with higher-than-average percentages recorded for Hong Kong and Singapore.

Besides wealthy individuals, some sovereign investors are also asking companies to pay more attention to ESG-related issues.

Last month, Norway's $1-trillion sovereign wealth fund said it would ask investee companies to follow stricter guidelines on sustainability and strengthen efforts to combat pollution caused by plastic waste in the oceans.

CapitaLand, whose shares are included in key global ESG-related benchmarks such as the Dow Jones Sustainability World Index and FTSE4Good indices, tends to score highly in surveys related to conservation and corporate governance.

The Singapore developer has cut its carbon emissions intensity by nearly a third since 2008, while achieving a near 25% drop in water usage per square meter over the same period.

HSBC, which has been active in helping companies raise ESG-linked funding, said such loans provide companies with an opportunity to demonstrate how they are addressing issues that are increasingly important to investors.

"Companies issuing green bonds and loans are perceived as not only responsible, but also as market leaders and well-run and governed businesses," said Jonathan Drew, Hong Kong-based managing director of the Infrastructure and Real Estate Group at HSBC.

Drew said the bank has led more than 25 transactions labelled as green, social and sustainability-linked across the Asia Pacific region so far this year. "The pipeline is strong and growing," he added.

Singapore builder City Developments, which has won awards for its green initiatives, said being included in major sustainability indexes has put it on the radar of funds that have set aside billions of dollars for socially responsible investments.

For instance, over $100 billion in institutional, retail and exchange-traded fund assets currently follow the MSCI ESG Leaders indexes, while investors representing more than $100 trillion track data and insights produced by CDP, an organization formerly known as the Carbon Disclosure Project.

UBS and DBS both said sustainable investing could help boost returns by identifying better-managed companies.

"Several studies have also shown that companies with strong ESG ratings outperform peers," said Mikkel Larsen, chief sustainability officer at DBS. "This is important to our wealth customers who generally are interested in making investments in support of a more sustainable world without having to forego returns," he added.

--Kevin Lim

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