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A novel green loan for Singapore-listed Wilmar has highlighted the dearth of such ESG-based borrowings in Asia, but now that the agribusiness company has provided a template, the onus is on banks and borrowers to push for change in the region.
Wilmar made headlines when it raised a $150 million bilateral revolving loan with ING in November.
The size of the deal may have been small, but the structure was novel: 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 looks like good public relations for both Wilmar and ING.
For the Dutch bank, which has done eight similar deals in Europe, this marked its first sustainable loan in Asia. For Wilmar, it was 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. Most loans bankers in Asia still view green loans as the preserve of European banks. When quizzed about the potential of the market, participants are quick to list a number of reasons why they can’t see it taking off here. A top concern is that, since margins are already low, 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.
Perhaps Asian bankers are just being pragmatic, but the attitude has focused more on why the green loan market cannot develop, rather than how it can. And that’s where one of the problems lies.
One banker rightly points out that for there to be meaningful growth in sustainability-related loans in Asia, there needs to be a shift in thinking across the market. That may sound wishy-washy, but it’s a valid concern, and thankfully can be overcome.
Indeed, a shift is already underway. China and India have reaffirmed their commitment to the Paris climate accord, even after the US, under president Donald Trump, chose to pull out. One look at the green bond market in Asia shows the mindset there is already transforming.
Numerous issuers from India and China, as well as from 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 materialized.
It can be argued that the infrastructure for green bonds is more advanced than for loans. But this means that bodies such as the Europe-based Loan Market Association and its counterpart, the Asia Pacific Loan Market Association, have plenty of examples to draw from when they are trying 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 favourable 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 in the types of products available, and going green could be a good way to start.