Financing a sustainable future: Lessons learnt from the NUS issuance of green bonds

| By Professor Lam Khee Poh and Associate Professor Lum Sau Kim |

Despite various economic and financial challenges, the field of green finance has been gaining traction worldwide as governments support the transition to a sustainable future. According to Crédit Agricole CIB, green finance is estimated to grow by 55 per cent in 2021 compared to 2020. Considering that the global economy shrank by 3.5 per cent last year and is projected to expand by only 6 per cent in 2021, this increase demonstrates the strong momentum in sustainable investing.

Green finance broadly refers to a range of financial instruments that promotes the efficient flow of capital towards investments that are responsive to addressing environmental and climate concerns. The instruments – including debt, equity as well as insurance services and products – are structured to ensure that the issuers, those seeking to raise the green funds, not only use the proceeds properly but also report their impact in a timely manner.

Governments, organisations, companies and investors worldwide are tapping the potential of such funding to power greener cities and economies. Access to green finance is therefore crucial to accelerate our progression towards long-term sustainability, especially for capital-intensive projects such as new-builds, retrofits and upgrades as well as green precincts.

Singapore has been advancing its financial sector capabilities to incorporate environmental, social and corporate governance (ESG) considerations into financing decisions that can drive long term sustainable economic growth. The foundations for doing this were laid down in various steps such as: commitments under the Paris Agreement; repricing resources with a carbon tax; the Public Sector Sustainability Plan 2017-2020; and an ambition to green 80 per cent of Singapore buildings by 2030. In 2019, the government announced the Green Finance Action Plan. It articulates a new and comprehensive long-term strategy to make sustainable finance a defining feature of Singapore's role as an international financial centre. Besides mainstreaming green and sustainability-linked loans, the Plan also supports research collaborations between leading universities and international institutions to advance technology and to distil best practices in ESG investing.

NUS: An early mover

Among institutes of higher learning (IHLs), NUS has been an early mover in the sustainability-linked finance journey. In April 2020, it launched a new Green Finance Framework that provides the overarching criteria and guidelines for the University to enter into green finance transactions. Through its inaugural green bond, NUS then issued S$300 million of 1.565 per cent 10-year notes in May 2020, making it the first IHL in Asia to do so. Last month, another S$300 million was raised through a second 10-year green bond paying a fixed coupon of 1.62 per cent. Both bonds, rated Aaa by Moody’s, were fully subscribed.

The bond proceeds will fund or re-finance green projects that are aligned to five focus areas - green buildings or precincts; renewable energy and energy efficiency infrastructure; sustainable water and wastewater management; pollution prevention and control; as well as sustainable management of natural resource and land use.

These environmental impact areas, together with accompanying goals and actions, are part of NUS’ Sustainability Strategic Plan, a dynamic blueprint that will evolve as NUS continues to innovate and implement new technological solutions as they become available.

An important initiative that helped burnish NUS’ green credentials among investors is SDE4, Singapore’s first new-build net-zero energy building. Launched in January 2019, SDE4 functions as a living laboratory to promote research collaboration with public agencies and industry partners. Based on energy audits, SDE4 has consumed less energy than what it produced using more than 1,200 solar photovoltaic panels installed on the roof. Furthermore, SDE4 boasts an energy-efficient, innovative hybrid cooling system that supplies 100 per cent fresh pre-cooled air. Among its many accolades, SDE4 was the first building in Singapore to be conferred the WELL Certification, a premier building standard by the International WELL Building Institute (IWBI) in September 2019.

Through our experience in raising green bonds to develop a more sustainable university, there are two perspectives that we would like to share. 

Lesson one: Going beyond the quantitative

At NUS, we believe in WELL’s mission to advance health and well-being of occupants in buildings. This is why we implemented human-centric features such as natural lighting and visual access to surrounding greenery in SDE4. The new E7 building is also designed to foster research collaborations through strategically placed courtyards and green pockets.

However, while such features have a real impact on wellness, they are not easily quantifiable for green finance metrics. Green bonds are usually tied to a particular project and have specific reporting criteria defined by green bond standards. For example, the Climate Bonds Standard and Certification Scheme only permits upgrade projects if buildings achieve emission reductions of 30 per cent to 50 per cent (depending on bond tenor) from a baseline. There are different requirements for different kinds of buildings, as well as standards based on unique geographical challenges.

As such, green finance instruments may be less flexible in funding projects with less measurable but equally important ESG outcomes.

A case can be made for tracking more holistic indicators that give issuers greater leeway in deciding how to allocate funds and boost uptake. In this regard, IWBI can further engage with impact investors by communicating the WELL agenda for the built environment and the related sustainability expectations.

NUS has also decided to go beyond the usual reporting metrics. Under current green bond guidelines, green bond projects in Singapore are only required to report their emissions reduction achievements on a yearly basis. Under the Green Finance Framework, NUS will be reporting annually and including qualitative and other measures in our communications with investors.

Lesson two: Creating real impact and helping smaller players

Larger firms often use green bonds to refinance green projects that have already happened while environmentally unfriendly firms might also issue green bonds tied to a specific project so as to distract from their overall ESG performance. These concerns have led to questions on greenwashing – the false labelling of businesses or projects - and on what added value sustainability-linked finance can deliver.

Amidst the rise of green finance, there are concerns that green bonds are generally very highly rated. According to the Climate Bonds Initiative, many green bonds tend to carry triple-A or double-A credit ratings – NUS’ green bonds were accorded the highest possible grade due to our corporate standing. This means that it is mainly the larger and more established firms that have the capabilities to tap on these instruments.

Hence, policymakers have to carefully consider how to drive green financing towards projects that deliver real impact and participation by smaller players to ensure equitable growth. Given that the green finance market is dominated by larger firms which have the resources and experience to track their environmental performance, the Singapore government has initiated projects for Small and Medium Enterprises (SMEs) to tap into green finance. It is also working on improving its green finance taxonomy so that issuers can better distinguish their green efforts from others.


About the authors

Professor Lam Khee Poh is the Dean of the NUS School of Design and Environment. Prof Lam is an architect, educator and researcher who specialises in computational design support systems for total building performance analysis and building diagnostics. He is a Director of the Centre for Liveable Cities, and Advisory Board Member of Delos, which established the world's first building standard focused exclusively on human health and wellness. He was awarded the 2013 Alexander Schwarzkopf Prize for Technological Innovation from the US National Science Foundation, and was conferred the inaugural iBuildSG LEAD Distinguished Fellow by the Building and Construction Authority in 2020.


Associate Professor Lum Sau Kim obtained her Ph.D. in Business Administration, co-majoring in Finance and Real Estate, from the Haas Business School at UC Berkeley. She is studying how green finance can help further corporate ESG goals.