Clear but Flexible Definitions Help Singapore Pursue Renewable Energy Investments in 2025

Singapore’s ambition to be one of the leading countries in Southeast Asia was put on full display when the Singapore Green Plan 2030 (the “Green Plan“) was announced during the tail-end of the Covid-19 era back in February 2021. While the rest of the world was struggling to get back on their feet, the Republic saw this period of global upheaval as a prime opportunity to reconstruct development in an environmentally sustainable way. 

Spearheaded by five different ministries, Singapore continues to seek to make good on its commitments under the United Nation’s 2030 Sustainable Development Agenda and the legally binding international treaty on climate change in the Paris Agreement. Four years on, Singapore has continued to make significant strides towards this end – expanding green spaces, accelerating solar energy development, and signing numerous international partnerships. This endeavour imports complexities that require different players to contribute to make ambition a viable one.

Role of Banks and Green Loans

One significant cog in the sustainability machine is the role of the banks and green loans –facilities designed to strengthen corporates’ ability to invest in environmentally friendly projects, encourage new entrants into the green economy, and build momentum towards the broader sustainability agenda. 

In the build up to the announcement of the Green Plan, in December 2020, the Monetary Authority of Singapore (“MAS“) published Guidelines on Environmental Risk Management (Banks) (“ERM Guidelines“). Here, MAS encouraged the banks to establish practices and frameworks that directly articulate and engage with the unique environmental risks that they face when providing services to customers. Simultaneously, MAS announced the launch of the Green and Sustainability Loan Grant Scheme (“GSLS“) that absorbed the costs of engaging independent sustainability assessors and advisors to develop green or sustainability linked loan frameworks. 

Together, the ERM Guidelines and the GSLS have allowed banks to shape more consistent and transparent practices for green loans in Singapore, helping to move the market from loose labels to well-defined standards. Further, MAS also released the Singapore-Asia Taxonomy, offering a detailed, colour-coded classification of economic activities across different sectors. These classifications determine whether the proposed projects from applicants are eligible for green loans.

Indeed, banks in Singapore like HSBC and UOB have taken their cue from MAS, publishing taxonomies and eligibility criteria. Relying on sectoral guidelines, the banks offer interested applicants a clear idea of the operation and scope of the loans and the principles for which they must abide by. Alternatively, banks like OCBC adopt established guidelines like the Green Loan Principles to assess applications. While not necessary, banks may tie their assessments to recognized certifications like those from the Building and Construction Authority and the Singapore Green Building Council.

Comparison to Other Countries

Looking beyond Singapore, there are notable differences in the green financing landscape as a result of differing regulatory environments, priorities, and players. While Singapore seemingly relies on MAS-backed frameworks and bank-led eligibility filters, neighbouring countries like Malaysia and Indonesia display distinctive models worth highlighting.

Malaysia

Malaysia leans heavily on public instruments to facilitate green lending, specifically, the Green Technology Financing Scheme 4.0 (“GTFS“) which is administered through state-owned agency Malaysian Green Technology and Climate Change Corporation under the Ministry of Natural Resources and Environmental Sustainability (“MGTC“). It is designed to reduce financial barriers for green projects by providing government-subsidised loans. Each applicant must first obtain MGTC approval, which is contingent on meeting MGTC-specified sector-specific criteria for what qualifies as “green”. Only once this certification is granted can the applicants approach participating financial institutions for credit facilities. 

While GTFS has succeeded in mobilising capital towards renewable energy, its reliance on the MGTC criteria has drawn criticism. Scholarly articles from Articles from the Journal of Surveying, Construction and Property and Clean Technologies and Environmental Policy flag this as an obstacle preventing the development of the green financing in Malaysia and their adoption. The absence of a uniform, principle-based taxonomy creates inconsistencies in the screening process.

Interestingly, the GTFS chose not to anchor its green financing framework to the Climate Change and Principle-based Taxonomy (“CCPT“), an initiative from the Bank Negara Malaysia, the Malaysian central bank. The CCPT was designed to bring coherence to climate-related financing by, among other things, standardising classification and reporting obligations, aligning the domestic green finance practices with international expectations.

By opting out of the CCPT, the GTFS created a dual-track system: one centred on MGTC’s operational guidelines, and another under regulatory authorities. While it does offer flexibility, it has raised concerns over fragmentation that hinders transparency and credibility of its sustainable finance ecosystem. 

Even after obtaining MGTC’s approval, applicants remain subject to the credit and environmental due diligence of participating financial institutions. These institutions often reference the CCPT when structuring their own risk assessments. In practice, this creates a dual-layered process: MGTC’s sector-specific certification on one hand, and the bank’s broader, principle-based evaluation on the other.

Indonesia

The primary financial instrument driving renewable energy economic activities is the Indonesia’s Green Sukuk Initiative (a green Islamic bond) (“GSI“), administered by the Indonesian Ministry of Finance. While green loan facilities exist in Indonesia, their update has remained limited; the World Bank notes that, for various structural and regulatory reasons, they do not present a viable financing pathway for most companies.

The green sukuk functionally operates similar to a conventional green bond, with the main distinction being its compliance with Islamic law. After issuance of the bonds, the proceeds are allocated to pre-approved projects that fall within the government’s Green Bond and Green Sukuk Framework. To become an approved project, applicants must meet the eligibility criteria set out in the framework, which prioritises sectors such as renewable energy, sustainable transport, and climate change adaptation.

This framework, however, does not provide great detail into what qualifies as a project eligible to receive funds from the GSI. The GSI does not incorporate the recently launched Taxonomy for Sustainable Finance Indonesia (“TKBI”), a structured, principle-based classification of activities aligned with ASEAN sustainable finance practices. This means that project selection for the GSI is conducted exclusively by the Indonesian Ministry of Finance operating on this specific framework and ministerial discretion.

This same obstacle is also cited by the World Bank as a hinderance to the development of green loans generally.

For companies, this lack of clear definitions creates a practical obstacle. Without a transparent and uniform taxonomy, applicants face uncertainty as to whether their projects will be deemed sufficiently “green” to receive financing.

Conclusion

It would be unfair to not give credit to the achievements of GTFS and GSI – both have successfully channelled capital into renewable energy projects, driving their countries towards a more sustainable future. Their initiatives demonstrate strong political will and have played a catalytic role in financing new developments and encouraging local players to partake in this new economy.

Yet, their operational frameworks, specifically definitions relating to eligibility, create uncertainty for companies considering participation. By contrast, Singapore’s model of clear yet flexible definitions offer a more stable and transparent foundation. 

For corporates in the region looking for predictability and credibility in green financing, Singapore emerges as the natural destination. 

For more information on this article, please contact Jennifer Chih

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