Asian owners say green finance will become the norm

SINGAPORE -- Picture the day when green finance is the rule, not the exception. The idea doesn't seem far-fetched in Asia’s hotel industry where green loans and other sustainability-linked borrowings are “accelerating,” according to a banker.

Markets such as Singapore and Hong Kong are leading the way. In Singapore, the monetary authority established a task force in 2021 to hasten green finance through improving disclosures and fostering green solutions. At the same time, appetite for green developments in the real estate and hotel industry is rising, stoked by “regulatory pressure and consumer demand,” a spokesperson at Singapore’s DBS Bank said.

The twin forces feed off each other and while green finance is still new relative to conventional loans, it’s unlikely to stay that way.

“Singapore banks are trying to shift a higher proportion of their loan portfolio to green loans, possibly due to the shift in focus by customers and investors on ESG aspects,” observed Shin Hui Tan, executive director of Park Hotel Group.

“In the longer term, non-green financing will be harder to come by, driving borrowers to develop greener products,” she said.

Park Hotel Group is an early adopter, securing a $179 million (S$237 million) green loan in February 2020 from UOB to refinance its Grand Park City Hall hotel in Singapore.

These sustainable features will help to future-proof our assets as we believe many will become the norm over time.

David Tsang

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Green loans are designed exclusively to finance eligible green projects in energy efficiency, pollution prevention and other related expenses which contribute to environmental objectives such as climate change mitigation, the DBS spokesperson said.

To qualify, borrowers must obtain relevant green certifications which demonstrate their commitment to sustainability. Pontiac Land, for instance, achieved Edge Advanced Certifications and in March converted $180 million in bank loans into green loans for its Fari Islands in the Maldives.

Edge Advanced shows a project has achieved at least 40% predicted energy savings, and minimum 20% predicted savings in water and all of the energy used to produce the materials that make up the building such as mining and transporting the materials.

Pontiac Land intends to use the green loan proceeds on initiatives such as the use of alternative renewable energy resources at Fari Islands, where a Ritz-Carlton, Patina and staff campus are in operation since May 2021. A third luxury hotel, Capella, is still on the cards.

The company intends to increase its green and sustainability-linked loans for Fari Islands as it continues into other phases. The aim is for Fari Islands to be carbon neutral without offsets by 2030.

Royal Group, Ascott Residence Trust and Worldwide Hotels are among other Singapore-based hotel owners that have taken up green or sustainability-linked loans. In Hong Kong, that would include Hong Kong and Shanghai Hotels, which owns the Peninsula brand, and Langham Hospitality Investments.

Going by logic, green finance should be cheaper than conventional loans, since borrowers are a “lower climate risk.” That is wistful thinking.

Neither David Tsang, CEO of Pontiac Land, nor DBS, HSBC and UOB – the banks that structure the Fari Islands green loan – were willing to discuss the dollars and cents of the refinancing in detail.

The DBS spokesperson only said, “They [green loans] are competitively priced compared to traditional loans.”

An HSBC spokesperson said borrowers may be offered lower interest rates as they are seen as lower risk in general. That said, pricing of the facility is calculated based on the borrower profile and structure of the loan, she added.

According to Park Hotel Group’s Tan, there isn't a tangible benefit from a loan perspective.

“We don’t see any difference in pricing when comparing green with non-green loans. But we believe it is part of being responsible business owners and in the long-term there will be tangible financial benefits especially when energy costs remain high,” Tan said.

The prospect of higher upfront green costs and a longer horizon to realize returns may deter owners who prioritize recouping losses caused by the pandemic.

Another deterrent is that green loans are more complicated and time-consuming to obtain than conventional loans. But the HSBC spokesperson said this is a “misconception.”

“Actually, this shouldn't put off a borrower as the credit assessment and sustainability assessment can be done concurrently. Sustainability assessment won’t slow down the drawdown of loans,” she said.

David Tsang, CEO, Pontiac Land

For Pontiac Land, its first green loan has other angles than the ROI from energy savings and other sustainable features over time, which Tsang said wasn’t the main factor.

“We believe that sustainability principles will only continue to grow in their relevance. They also fundamentally make good business sense with tangible savings if you have a longer-term horizon. In addition, these sustainable features will help to future-proof our assets as we believe many will become the norm over time,” he said.

The Maldives is also a “sensitive place" for development, hence the need to push the envelope in sustainability at all stages of development and operation, and to make a positive impact on communities, Tsang said.

“These efforts are aligned with other green investors and therefore also widens the market for sustainable-linked financing, making it more accessible for the market to continue to grow,” Tsang added.

This is the first time that DBS and UOB has done a green loan in the Maldives, and the first time HSBC has issued a green loan for the Maldives hotel sector. It augurs well for the archipelago of low-lying islands and atolls which face an existential threat from rising sea levels.

“The Maldives is one of the most naturally beautiful environments but also one of the most challenging as a responsible developer,” Tsang said. “The necessity for new construction methods, responsible materials and self-efficient energy and infrastructure will lead to greater innovation to make future developments sustainable and viable.”

In this, Fari Islands, a string of four islands – one of which was wholly dedicated to staff housing instead of building another hotel – has inherent advantages, especially the ability to masterplan the development from scratch and maximize sustainable features. 

Among these features are the extensive use of “mass engineered timber” that reduced carbon emissions by 6,000 tonnes after production and transportation. And instead of importing trees from foreign countries, the construction team saved 20,000 trees that were cleared for development in neighboring Maldivian islands, conserved and transplanted them to Fari Islands.

Fari Islands also hosts one of the largest solar installations in the Maldives. Departing from the prevalent thatched roof structures of villas there, its flat roof design enables solar panels to be easily mounted.

Another key advantage is the long-standing relationship Pontiac Land has with Marriott International, which also operates the Ritz-Carlton Millenia Singapore. Patina and Capella are brands under Capella Hotel Group, a wholly owned subsidiary of Pontiac Land.

Tsang said both operators were consulted early on from the project conceptualization phase and offered valuable inputs based on their industry experience and past projects.