A major component of the recently-released SG Green Plan of the Singapore Government is green financing. Green financing is the issuance of bonds (so-called “green bonds”) to fund infrastructure projects and development that are environmentally-friendly or contribute to sustainable development. They are not foreign to Singapore but have received an immense fillip this year as DPM Heng Swee Keat announced that the Government would raise $14.4 billion (S$19 billion) of financing via green bonds for public infrastructure projects in 2021–namely the Tuas Nexus project, which will be Singapore’s first integrated waste and water treatment facility.
What are green bonds and why should Built Environment players care? Green bonds are bonds issued by an entity for the purpose of using the capital raised in a sustainability-linked project, with differing covenants, terms, and sometimes even pricing as compared to regular bonds. With the rise of ESG investing and awareness of climate change’s potential and realised impacts on the global economy, green financing has picked up steam over the past few years, with China and Japan being leaders in the space within Asia. Singapore is a global financial hub by itself, but with the SG Green Plan, the Government intends to expand the city state’s financial market prowess to include mastery of green financing as well. Through the floating of massive green bond offerings this year and beyond, the government is working to jumpstart private sector interest and issuance in the green bond sector–as well as all the associated financial frameworks (such as external reviewers, ratings agencies, trustees, and so on). But why should private sector players be interested in green financing?
For one, the larger trend in Singaporean construction moving forward will be towards sustainable building and construction, in conjunction with the SG Green Plan and general global movements in building styles and materials. The government right now, and private clients eventually, will seek to commission more and more sustainable construction projects to match public demand and government mandates. Such projects would involve energy efficiency overhauls in HDBs, greener buildings, agricultural infrastructure, and other capital-intensive works. Green financing for such projects would be well-received by Singapore’s nascent green bond market buttressed by the government. And pricing linked to the BCA Green Mark Labels could be cheaper than regular financing options for such projects. In June 2019, Fraser set an important precedent by securing a green loan with a reduced pricing structure linked to the BCA Green Mark Scheme. But this was a process that involved a steep learning curve and related costs. As the government supercharges he local green bond landscape this year onwards, the influx of green capital is expected to lower costs as players within the landscape–reviewers, ratings agencies, banks etc.–expand their capacity and compete to lower costs to facilitate government green debt ahead of the private sector’s entry into the stage. As such, private sector players can also look forward to lower financing costs with regards to administrative expenses and fees as the market matures. The green bond market for infrastructure in Singapore is very young–with its origin going back only four years to 2017, when MAS launched the green bond grant scheme with participating banks. In that time, the market has greatly developed up to and including February of this year, when the Government announced its plan to boost it with green debt issuance. MAS continues to develop grant schemes to support sustainability-linked infrastructure financing and the pace of the market’s maturity is picking up. BE firms looking to ride the wave would do well to keep that pace as well.