Asian sustainable lending needs a big push

A novel green loan for Singapore-listed Wilmar has put a focus on sustainability-based borrowings in Asia — or the lack thereof. But now the agribusiness company has provided a template for such financings, the onus is on banks and borrowers to push for change in the region. The benefits may be intangible, but they will be more far-reaching than a few extra basis points on the P&L.

  • By Shruti Chaturvedi
  • 05 Dec 2017
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Wilmar made headlines when it raised a $150m bilateral revolving loan with ING in November, for which pricing on a portion of the facility will decrease if the borrower improves on some environmental, social and governance (ESG) aspects.

The deal is one of the first green loans in Asia, and certainly great public relations for both Wilmar and ING. For the Dutch bank, it was its first sustainable loan in the region versus eight similar deals in Europe. For Wilmar, it marked the first deal of its kind in the palm oil industry.

But now more than ever, the Asian loans market should push for more sustainable fundraisings.

It won’t be easy. Recent conversations between GlobalCapital Asia and offshore loans bankers revealed that most still view green loans as the preserve of European banks. When quizzed about the potential of the market, participants were quick to list a number of reasons why they couldn't see it taking off here. A top concern was that as margins are already at low levels, how much room would there be for a further reduction?

In addition, while regulations require certain European banks to channel some of their capital into green lending, most Asian banks do not have such concerns — which could explain why green loans have failed to take off in a big way.

There is, understandably, some pragmatism in Asian bankers’ views, but the attitude has focussed more on why the green loan market cannot develop, rather than how it can. And that’s where one of the problems lies.

Green uprising

One banker rightly pointed out that for there to be meaningful growth in sustainability-related loans in Asia, green or sustainable thinking has to become second nature to the market.

That should not be difficult to achieve given two of Asia’s biggest economies, China and India, have reaffirmed their commitment to the Paris climate accord, even as the US chose to pull out earlier this year. One look at the burgeoning green bond market in Asia also shows the mindset is already transforming.

Numerous issuers from India and China, as well as the likes of Taiwan and Singapore, have jumped on the green bond bandwagon. When the market really kicked off a couple of years ago, there were even whispers of a green loan from Asia, although that never materialised.

It can be argued that the infrastructure for green bonds is more advanced than for loans. But this means that bodies like the Europe-based Loan Market Association and its counterpart the Asia Pacific Loan Market Association have plenty of examples to draw from to put realistic green loan standards in place.

More importantly, for the movement to gain momentum, Asian companies need to embrace the idea of green loans.

Apart from the obvious positive publicity an attempt to raise and market a green loan would bring, lower pollution levels, cleaner air and water and the undoing of centuries of environmentally irresponsible behaviour towards the climate would be the real pay-off.

The structure of the ING-Wilmar deal indicates that an economic incentive linked to an improvement on the ESG front can be a motivation for borrowers. Banks, of course, have to determine how much they can shave off the margin for a deal, while still keeping it viable.

A delicate balance of economic interests and environmental considerations has to be struck, and that will only come with time and experience. But the Asian loan market should welcome an expansion to the types of products available — and going green could be a good way to start. The long-term benefits will be worth it.

  • By Shruti Chaturvedi
  • 05 Dec 2017

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