Green Finance: Link REIT Secures HK$1B Sustainability-Linked Loan

Link Asset Management, the manager of Link REIT, has just secured a five-year sustainability-linked loan of HKD$1 billion (US$129 million) from Singapore-headquartered OCBC Bank. It marks the property company’s first sustainability-linked loan transaction in Hong Kong dollars, a show of strengthened commitment to green finance as the industry begins to heed to climate crisis warnings. 

Link REIT, the first real estate investment trust in Hong Kong and the largest in Asia as measured by market capitalisation, has just announced the signing of a five-year sustainability-linked loan of HK$1 billion from OCBC Bank. It is signed under Link Finance, the special purpose vehicle under Link REIT, and marks the property giant’s first such loan transaction in Hong Kong dollars. 

Under the loan, OCBC Bank will offer interest rate reductions on a tier basis subject to Link REIT’s environmental, social and governance (ESG) performance, measured by sustainability indices under the Global Real Estate Sustainability Benchmark (GRESB). GRESB scores represent sustainability standards in real estate and infrastructure investments across the world. 

Link REIT’s chief financial officer Ng Kok-siong says that the move signals the company’s pledge to green its operations. 

“Green financing as part of our capital management strategy is an integral part of our vision, and this sustainability-linked loan shows our continued commitment to achieving growth in a sustainable and responsible manner,” Ng said in a statement. 

In March this year, Link REIT signed its very first sustainability-linked loan in Australian dollars from DBS bank. Over five years, DBS will lend AU$212 million (US$146 million) to the company, subject to interest cost savings GRESB sustainability scores are maintained or improved. 

Link REIT’s latest announcement comes after the Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC) established a green finance steering group in May. The new cross-agency steering group aims to coordinate between different financial sectors and ensure that companies disclose climate impacts, risks and factors into their investment processes. 

While the finance industry has remained conservative in taking responsibility for its environmentally-damaging practices, it has become increasingly clear that it is beginning to recognise the multitude of risks posed by climate change, including on financial stability and long-term profit. 

Earlier this year, a report by international audit and advisory firm Mazars and independent think tank OMFIF revealed that the majority of banks and regulators now see climate change as a major threat to stability, and will begin rolling out climate stress tests, setting sustainability criteria and mandating climate-related financial disclosures.

Similar conclusions were reached by the World Economic Forum’s (WEF) annual risks report published in January, which saw environmental issues dominate all top 5 spaces in the index of issues that will majorly impact world business and financial institutions over the next decade. 

It isn’t just large banks, lenders and asset managers that are taking note as awareness of the climate crisis grows. Investor sentiment has undergone a shift in recent months as well, as shown by the quadrupling of capital moving into environmental funds in 2019. 

The trend has sped up amidst the coronavirus crisis, in particular amongst rich Asian investors who are now prioritising ESG investments that have proved more crisis-resilient. 

Lead image courtesy of Link REIT.