HSBC Singapore has successfully piloted the Green and Sustainable Trade Finance and Working Capital (GTF) Framework, a guide for banks and financial institutions in extending green financing to buyers and suppliers; recently announced by the Monetary Authority of Singapore.
The GTF Framework adopts a principles-based approach for banks to identify and assess eligible green trade finance transactions, and provides specific guidance on recommended industry certifications for trade finance activities to qualify as green.
“Climate change requires all areas of society to do their part,” comments Iain Morrison, Head of Global Trade & Receivables Finance (GTRF), HSBC Singapore. “The GTF Framework sets in motion a move towards a clear, unified methodology to qualify trades and working capital loans as sustainable, and represents a tangible blueprint for financial institutions to assess, monitor, and report on how ‘green’ a company’s activities are. We believe that the GTF is a great step in the right direction on our journey to address climate change.”
The Framework sets out that the Bank’s customer’s use of the funds must meet any of the environmental objectives in the Green Finance Industry Taskforce (GFIT) Taxonomy. These criteria currently include climate change mitigation, climate change adaption, protection of biodiversity, and promoting resource resilience.
The GTF framework then guides lenders on how to perform suitability assessments and the documentary evidence needed to qualify the underlying activities as green. The documentary evidence could come in the form of a recognised industry certificate, government license, or accepted third-party assessment that shows the greenness of the activity or the goods.
HSBC Singapore has successfully piloted two transactions under the Framework.
HSBC Singapore issued an Import Letter of Credit facility under the GTF Framework to Swelect, a Singapore-based procurement hub of one of India’s leading solar PV modules manufacturer to facilitate the purchase of solar photovoltaic components.
Swelect’s use of the funds achieved the ‘Climate Change Mitigation’ environmental objective defining activities that enable low carbon activities or those with substantial emissions reductions.
The facility differs from a regular trade facility in that it requires the company to continue meeting certain criteria in order to retain its green classification. In accordance with the lending criteria set out by HSBC, the solar PV components procured by Swelect must carry certification from one of the world’s leading testing service providers, and they will need to keep the certification in full force and effect under the green facility.
“As a green energy solution company, we have the ambition of embedding sustainability into our treasury and financing practices,” comments Mirunalini Chellappan, Director of Swelect Group. “Through the green and sustainable trade facility with HSBC Singapore, we are able to fill the working capital gap resulted from the longer manufacturing and installation process required of solar photovoltaic components.”
HSBC extended a green trade loan under the GTF Framework to World Metals, a Singapore SME in the metal recycling industry. World Metals was seeking additional working capital to finance the refinery and recovery of precious metal from e-waste.
“The deep due diligence associated with the assessment of a loan’s use of proceeds for Green finance has in the past required significant resource and additional costs. However, leveraging on the GTF Framework, HSBC was able to support World Metals not only its financing and growth needs, but its sustainability agenda too,” shared Iain Morrison.
World Metals’ use of the funds achieved the ‘Promote Resource Resilience’ environmental objective, which includes activities that promote resource efficiency and resilience, management of waste, sustainable water management, sustainable management of living natural resources, and land use and circular economy adapted products, processes and production technologies.
The evidence agreed with the client comes in the form of an industrial qualification certificate for recycling metal and electronic waste, and also a license to collect and dispose of this waste. In accordance with the lending criteria set out by HSBC, and in line with the Framework, World Metals must continue meeting the requirements of a Singapore accredited independent third-party certification provider and a waste collection and disposal license when carrying out the recycling and recovery of non-ferrous precious metal and electronic waste.