Green finance can help mobilise private investments

Financial institutions such as banks are going aggressively towards green financing across the world. In India as well, banks are providing loans and financing options for renewable energy projects, energy-efficient building construction and retrofits, and other green initiatives. 

A framework for accepting green deposits was made public by the Reserve Bank of India (RBI) on April 1, 2023, in an effort to support and advance the nation’s green finance ecosystem. India Business and Trade spoke with Ravinder Chhabra, Managing Director & Regional Head – Inst. Banking, North India, DBS Bank India. 

The Singaporean bank is trying to support India’s goal of expanding ethanol blending into petrol and doubling its ethanol distillation capacity. DBS bank has provided a five-year Rs. 1.75 billion transition finance credit as part of one of its green financing projects, a first-such transition loan from a foreign bank to India’s biofuel business. 

Photo Source: DBS Bank

IBT: What role does DBS play in financing the transition to a low-carbon economy?

Ravinder Chhabra: At DBS Bank, we believe that decarbonisation is a generation-defining business opportunity and are committed to furthering growth responsibly by helping businesses transition to more sustainable practices. In the past five years, DBS has committed a cumulative total of SGD 61 billion in sustainable financing transactions, surpassing our sustainable financing goal of SGD 50 billion by 2024, two years ahead of our target year.

We were the first bank in Singapore to sign up for the Net-Zero Banking Alliance (NZBA) and the first bank in Southeast Asia to make comprehensive decarbonisation commitments encompassing some of the most carbon-intensive sectors, including power, oil and gas, automotive, aviation, shipping, steel, and real estate. We also set data coverage targets for the agri and chemical sectors with the intention of reducing future emissions. These targets will guide us in strategically channelling financing away from high-emitting activities towards low-carbon alternatives.

DBS Bank has pledged zero thermal coal exposure by 2039. Our journey toward this goal began in early 2018 when we restricted financing for coal-fired power projects to those employing advanced technologies. Since April 2019, we have ceased financing new thermal coal mining projects, and we have progressively reduced our thermal coal exposure.

We offer a comprehensive suite of sustainable financing solutions to customers, including funding support to corporations in brown sectors to become greener. This includes financing to encourage the retirement of coal-powered plants and decarbonisation activities. The Bank adopts a multi-pronged approach with clients and partners to accelerate the movement to net zero.

IBT: What are the partnerships or financing deals the bank has done in renewable energy projects or clean technology in India?

Ravinder Chhabra: As a bank, we are committed to financing the pathway to a lower carbon future, and one example of this is the transition loan that we set up for Shree Renuka Sugars Ltd., one of the largest sugar and green energy (ethanol and renewable power) producers in India. To bolster India’s ambition of doubling the ethanol distillation capacity and increasing ethanol blending in petrol, DBS provided a five-year INR1.75 billion transition finance facility, a pioneering move as the first transition loan from a foreign bank to India’s biofuel industry.

DBS Bank India was among the lending financers of the Round The Clock (RTC) renewable energy project for ReNew Power, one of India’s largest Independent Power Producers with a total gross portfolio of around 12.8GW of renewable energy projects across the country. DBS provided syndicated project finance facilities, FX hedging and LC facilities to fund Renew’s 1,300MW hybrid RTC, a battery-enabled project that addresses challenges stemming from intermittency. Valued at $1 billion, it represents the single-largest project finance facility for an Indian renewable energy project.

As a part of a sustainable financing initiative, REC Limited, a Maharatna company has established a Green Finance Framework as the basis for issuing green bonds, loans and any other financial instruments (“Green Financing Instruments”) which are used to finance and/or refinance eligible green projects. DBS acted as a Mandated Lead Arranger for their recently issued Green bonds worth US$750 million, under its Global Medium Term Programme of $7 billion as a part of this framework. The issue witnessed an over-subscription of approximately 3.5 times from 161 investors with active participation from quality accounts. Investors from across the globe participated in the issue, with Asia Pacific (APAC) accounting for 42%, Europe, Middle East & Africa (EMEA) for 26%, and the US for 32%.

DBS’ support for Greenko Group’s International Green Bonds issuances in 2021 and 2022, also underscored the bank’s commitment to innovative financing solutions. In March 2022, this partnership facilitated Greenko’s first green bond for a Pumped Hydro Project and helped raise USD 750 million, promoting sustainable energy storage solutions for consistent RTC renewable energy supply.

IBT: What are the bank’s criteria for green loans, and what types of projects or businesses are eligible?

Ravinder Chhabra: At DBS, to balance financial viability with sustainability, we’ve integrated responsible financing into our lending and capital markets decision-making processes. Our sustainable financing falls into two broad themes:

• financing green, sustainable, or transition projects and
• providing corporate-level financing to help businesses transition to low-carbon operations.

Our approach to sustainable financing is a two-tier process involving our IBG Relationship Managers (RMs) and the IBG Sustainability team. Initially, RMs identify potential transactions that align with our sustainability criteria and collaborate with customers. These transactions then undergo technical review and final approval by the IBG Sustainability team, which also provides guidance on data measurement where necessary. Group Audit periodically reviews the effectiveness and compliance of our project evaluation and selection process.

We assess renewable energy investments based on several criteria, including environmental, social, and governance (ESG) factors, technical and financial viability, and market potential and competitiveness. We also conduct Environmental and Social Impact Assessments for all relevant transactions.

To ensure a rigorous evaluation, we’ve developed sector-specific guides, incorporating international best practices and conventions like the IFC Performance Standards and World Bank Environmental, Health, and Safety Guidelines. Renewable energy projects, for example, fall under our Energy-Power sector guide, which includes criteria such as avoiding adverse impacts on UNESCO World Heritage Sites or protected areas and conducting environmental and social impact assessments for significant expansions or greenfield developments.

Our data-driven approach, coupled with these sector guides, allows us to thoroughly assess the sustainability and viability of projects. Furthermore, we believe that adopting a blended finance model, which includes concessional loans, grants, guarantees, or equity to reduce risks and costs for private investors, can accelerate the shift towards renewable energy. This approach underscores our commitment to responsible and sustainable financing while driving a positive impact in the communities we serve.

IBT: The importance of products such as Climate Finance, Green Bonds, Green Infrastructure, and Green Investments in the context of the Indian market

Ravinder Chhabra: According to a report by the Climate Policy Initiative from August 2022, India needs around $170 billion annually in investments to meet its climate targets under the Paris Agreement. However, current climate finance flows are only about $44 billion annually, leaving a significant gap. Banks have a unique opportunity and responsibility to contribute to this transition by creating financial products for industries and helping them transition to sustainable practices. Green finance can help mobilise private investments in green projects and help businesses transition to sustainable practices by leveraging instruments such as green bonds, green investments, green loans and transition finance.

Through these instruments, financial institutions and governments can provide low-cost capital, innovative financing structures, and risk mitigation instruments to support green projects, such as renewable energy, energy efficiency, waste management, and green hydrogen.

IBT: Which are some of DBS’s green offerings?

Ravinder Chhabra: DBS provides a comprehensive range of products and solutions to facilitate our clients’ transition towards sustainable business practices. Our offerings encompass renewable energy financing, green loans, sustainability-linked loans, and green & sustainable trade financing. However, we go beyond merely providing financial support; we actively engage with our clients to initiate discussions on decarbonisation strategies. Aside from direct financing, through the use of ESG bonds, DBS assists clients to tap capital markets to raise funding for their green and climate projects or social missions, and to support their businesses in the transition towards a net-zero future. We offer advisory services tailored to specific sectors, delivering science-informed decarbonisation strategies for industries like automotive, shipping, aviation, and power.

Apart from this, the Bank also tries to embed sustainability within our existing product solutions for retail customers, enabling them to embrace a more sustainable lifestyle. Some of these products include initiatives like planting a tree for every fixed deposit booked and our innovative green debit card crafted from 99% recycled plastic, which provides discounts at eco-friendly resorts and lifestyle brands, promoting sustainable consumption. We have also recently introduced ‘digiportfolio,’ which allows customers to invest in ESG funds through curated baskets of mutual funds.

IBT: SMEs account for 90% of all businesses worldwide. How is DBS Bank helping SMEs adopt sustainability?

Ravinder Chhabra: At DBS Bank India, we recognise the important role that SMEs play in the fight against climate change, and we are committed to addressing their unique challenges while helping them make the most of the opportunity behind sustainability. Last year, a joint report by DBS Bank and Bloomberg highlighted significant hurdles that small businesses face in India. It revealed that 87% of respondents felt the need for a better way to measure the success of their ESG projects, while approximately 60% identified insufficient funding as a critical concern when transitioning to sustainable practices.

DBS Bank aids SMEs in their digitalization journeys and encourages these businesses to adopt innovative sustainable practices, reduce energy consumption, manage waste efficiently, and build resilient supply chains by leveraging our financing options. We offer our customers the guidance and knowledge required to make more informed business decisions.

DBS Bank also addresses the funding gap for pioneering start-ups addressing critical social and environmental challenges through its Grant programs. The DBS Foundation Grant Award is our flagship program that recognises, rewards, and supports businesses for their impact. Last year, the DBS Foundation expanded the Grant Award’s mandate to introduce a category for SMEs, encouraging them to transition towards more sustainable business models. Despite being the first instalment, over 250 SMEs applied for the award, indicating the growing awareness and interest in this space.

Awardees can receive funding of up to INR 1.5 CR (SGD 250,000). In addition to the funding, Grant Award recipients can leverage the resources and expertise available across DBS to strengthen their businesses. These resources include preferential banking packages, skill-building and mentorship programs, and access to a robust ecosystem of like-minded businesses, investors, and enablers.

Since its launch in 2014, the DBS Foundation has contributed to the growth of over 800 businesses for impact across Asia. Out of these, approximately 100 enterprises have been awarded a total of more than SGD 13 million (~INR 80 Crore) through the annual Grant Award.