On 8 October 2015, the Association of Banks in Singapore (“ABS”) released the ABS Guidelines on Responsible Financing (“Guidelines”), a set of industry guidelines to enhance the implementation of responsible financing across the banking sector in Singapore. These Guidelines have been in the works since early 2015, and were partly prompted by the Transboundary Haze Pollution Act that was passed in Parliament in 2014.

Guidelines on Responsible Financing

The Guidelines were developed in consultation with the banks in Singapore. They aim to assist in the systematic integration of Environmental, Social and Governance (“ESG”) criteria into banks’ risk assessment and lending decision-making processes, and the achievement of greater transparency and accountability on ESG issues. The Guidelines do not carry penalties for non-compliance.

The Guidelines set a minimum standard on responsible financing practices to be adopted, but banks are free to adopt higher standards if they wish.

Banks are expected to disclose their policies on responsible financing in their annual reports within 12 to 18 months’ time. They are also expected to implement robust governance systems through appropriate policies and procedures by 2017.

Responsible financing requires the banks to take into account ESG issues such as greenhouse gas emissions, deforestation, labour standards, human rights, corporate ethics and integrity when making a risk assessment or lending decision.

Under the Guidelines, banks should prioritise certain industries with “elevated risk” when developing their responsible financing policies. These industries are as follows: agriculture, chemicals, defence, energy, forestry, infrastructure, mining and minerals, and waste management.

Principles of Responsible Financing

The Guidelines comprise three principles:

  1. Disclosure of Senior Management’s Commitment to Responsible Financing

Banks are to publish in their annual report and websites the following: its management positioning and organisation support for responsible financing as one of its strategies/priorities, its Chairman’s or CEO’s commitment to support and implement responsible financing, and its policy framework for the support of responsible financing.

  1. Governance on Responsible Financing

Banks are to allocate sufficient resources to support the implementation of their responsible financing framework. Banks are also to ensure that they have sufficient governance/internal controls, either by way of a separate set of responsible financing policies and procedures or by embedding responsible financing practices into their existing policies and procedures.