Green Finance | Benefit and Models of Sustainable Funding

Author Name: Tiffany Lee – Marketing Analyst at FreightAmigo

Definition of green finance:

Green finance refers to the financing of projects or investments that contribute to the development of a sustainable economy and address environmental challenges, including climate change, pollution, and resource depletion. It involves the allocation of financial resources towards environmentally sustainable projects and activities.

Importance of green finance:

Green finance is important because it provides funding for sustainable and environmentally friendly projects, which can help address environmental challenges and promote sustainable development. It can also help to mobilize private sector investment towards sustainable investments, while reducing the risk of stranded assets and promoting long-term economic growth.

Shift to Sustainability

As the mounting effects of climate change continue to impact global supply chains, businesses are more focused on sustainability than ever before. Although corporate social responsibility is not a new topic, it seems that the industry has reached a tipping point where “being more sustainable” pressure is higher. More than 80% of consumers are starting to make buying choices based on a business’s sustainability practices.

Corporates are in need for budget and funding to make sustainable development their core, long-term business priorities. This is where green finance comes in handy in these changing times.

Therefore, FreightAmigo has gathered and summarised all the requirements, application practices, and 15 green finance options provided by banks in Hong Kong for you.

Examples of green finance:

Examples of green finance include investments in renewable energy, energy efficiency, sustainable agriculture, green buildings, and low-carbon transportation. Green bonds, green loans, and other financial instruments that support sustainable projects are also examples of green finance.

Green bonds: These are fixed-income securities that are used to finance environmentally sustainable projects, such as renewable energy, energy efficiency, and sustainable agriculture. The proceeds from green bonds are earmarked for specific green projects and activities.
Green loans: These are loans that are used to fund environmentally sustainable projects and activities. The terms of green loans often include requirements for environmental performance and sustainability reporting.
Carbon credits: These are tradable certificates that represent a reduction in greenhouse gas emissions. They can be bought and sold on carbon markets and are used to incentivize emissions reductions.
Green investment funds: These are investment funds that focus on environmentally sustainable projects and activities. They may invest in companies that are leaders in sustainable practices or in green infrastructure projects.
Green insurance: This is insurance that provides coverage for environmental risks, such as natural disasters or pollution. It can also incentivize environmentally sustainable practices by offering lower premiums for businesses that demonstrate good environmental performance.
Energy efficiency financing: This is financing that is used to fund energy efficiency projects, such as building retrofits or the installation of energy-efficient equipment. It can help to reduce energy consumption and greenhouse gas emissions.
Sustainable agriculture financing: This is financing that is used to fund sustainable agriculture practices, such as organic farming or regenerative agriculture. It can help to reduce the environmental impact of agriculture and promote sustainable food production.

Differences between Green Finance Action Plan 1.0 and 2.0:

The Green Finance Action Plan 1.0 was launched in 2016 by the People’s Bank of China to promote green finance in China. It focused on establishing a green financial system, developing green financial products, and improving the green finance policy framework. The Green Finance Action Plan 2.0, launched in 2021, builds on the achievements of the first plan and aims to further strengthen the green financial system, promote international cooperation, and accelerate the development of green finance in China.

Relationship between green finance, ESG, and SDG:

ESG stands for Environmental, Social, and Governance, and refers to the three main factors that investors consider when evaluating the sustainability and ethical impact of an investment. SDG stands for Sustainable Development Goals, which are a set of 17 goals established by the United Nations to promote sustainable development. Green finance is closely related to ESG and SDG because it supports sustainable and environmentally friendly projects and investments that contribute to the achievement of the SDGs and the promotion of ESG principles.

Green finance and ESG:

ESG stands for Environmental, Social, and Governance, and refers to the three main factors that investors consider when evaluating the sustainability and ethical impact of an investment. Green finance is closely related to ESG because it supports environmentally sustainable projects and activities that contribute to the achievement of ESG principles. By considering ESG factors in investment decision-making, green finance can promote long-term sustainable growth and reduce the risk of stranded assets.

Green finance and SDG:

SDG stands for Sustainable Development Goals, which are a set of 17 goals established by the United Nations to promote sustainable development. Green finance is closely related to SDG because it supports projects and activities that contribute to the achievement of the SDGs. For example, investments in renewable energy and energy efficiency can help to reduce greenhouse gas emissions and address climate change (SDG 13), while investments in sustainable agriculture can help to promote food security and sustainable agriculture practices (SDG 2).

ESG and SDG:

ESG and SDG are also closely related because ESG factors are important considerations in achieving the SDGs. For example, investments in companies that have strong ESG performance can help to promote sustainable development and contribute to the achievement of the SDGs. ESG factors such as environmental performance, social responsibility, and good governance can also help to identify and mitigate risks that may affect the achievement of the SDGs.

How does green finance promote sustainable finance? (With a focus on environmental green finance, expanding to sustainable finance that covers ESG):

Green finance promotes sustainable finance by encouraging investment in environmentally sustainable projects and activities, which can help address environmental challenges and promote sustainable development. It also encourages the adoption of ESG principles in investment decision-making, which can help to promote long-term sustainable growth and reduce the risk of stranded assets. By expanding to cover ESG factors, green finance can also contribute to social and governance issues, making it a more comprehensive approach to sustainable finance.

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Green Finance – Requirements and Practices

Recognition and creation of sustainability strategy is one thing – having concrete, measurable goals is another. In order to apply for any form of sustainable funding, companies must have clearly established their corporate or supply chain sustainability goals as evaluation reference for financial institutions.

There are different requirements of measuring metrics, for example ESG Metrics and Green Loan Principles. The former measures the current company practices on items such as greenhouse gas emissions, diversity and inclusion percentages, living wages; the later is a guiding philosophy in which businesses should be able to access capital without harming the environment such as alternative fuels and fuel optimization, increase technology in efficiency (i.e., route planning, partnering with green carriers, asset utilization, inventory forecasting).

These key performance indicators (KPIs) are crucial for sustainable funding application as they track and measure the effectiveness of the overall sustainability program. The results of sustainability goals can be reflected in a business’s cost savings generated, company reputation, customer feedback etc.

Green Finance – 15 Green Financing Options Available in Hong Kong

There are 5 banks in Hong Kong that offers different models of green fund to serve the various corporate needs.

HSBC –

1. Sustainable Financing Program : Provides financial support and recognition for customers investing in eco-friendly equipment. Minimum financing amount: HK$1,000,000; repayment period of up to five years. Applicants who acquire machine, equipment or installation with expected carbon emission reduction based on the Business Environment Council’s environmental merit assessment result are eligible.
2. Sustainability Linked Loans : To facilitate and support environmentally and socially sustainable economic activities and growth based on ESG Metrics.
3. Green Trade Finance : A trade finance facility supporting eligible environmentally sustainable trade activities (e.g. purchase, supply of goods or services) and adhering to the Green Loan Principles.
4. Green Loans : Made available for the finance or refinance, in whole or in part, of new or existing eligible Green Projects. They are similar to a normal corporate loan but companies need to follow the Green Loans Principles.

DBS –

Green and Sustainable Trade Financing : Get financing support for renewable or sustainability-linked projects from bidding till contract fulfilment; enable suppliers to access lower cost credit and improve stickiness and create more resilient and sustainable supply chains.
- DBS could issue Banker’s Guarantee, Letters of Credit issuance and Confirmation to support the performance of and/or to mitigate payment risk of underlying projects or transactions that have a positive contribution to ESG (Environmental, Social and Governance) goals. Enhance the cashflow whilst extending payment terms and enabling suppliers to access funds at lower costs.
Sustainability-linked Loans : Structured to enable customers to pay variable interest depending on their achievement of a set of pre-agreed ESG performance targets which are validated by an independent ESG rating agency or verification party ; loan scale is case by case based.
Green Loans : Used to exclusively finance eligible green projects with clear environmental benefits like energy efficiency, pollution prevention and others; mostly used by property developers.
ESG Bonds : Assists clients to tap capital markets to raise funding for their green and climate projects or social missions, and to support their businesses in the transition towards a net-zero future.
Renewable and Clean energy loans : Used to finance renewable and clean energy projects such as solar, wind and others both in Hong Kong and overseas

Hang Seng Bank –

Green Financing Promotion Scheme : To acquire eligible equipment. Eligible equipment include the equipment used in Hong Kong or Mainland China falling into at least one of the following green project categories: renewable energy, energy efficiency, pollution prevention and control, sustainable water and wastewater management, but excludes environmental friendly vehicles. Applicable to General Banking Facility and Hang Seng Business Loan; up to HKD 200,000 cash rebate.

China Construction Bank –

Green Deposits : Funds deposited are used to finance environmental projects. Green Deposits are available in terms of current, savings and time deposits in HKD, USD and RMB. The minimum deposit amount is HKD 1 million (or its equivalent in USD or RMB) to be maintained for 3 consecutive months.
Green Loans : A series of green financing products including Green Loans and Sustainability-linked Loans are available to support corporate customers in their green transition and accelerate sustainable development for green industries.
Green Bonds : Assistance will be provided to corporate customers in the issuance of green bonds. This includes support in establishing green bond frameworks, screening for eligible green projects, consulting on green bond structures, as well as organizing and executing green bond issuances in accordance with the sustainable investment requirements of green investors in the market.
Green Finance Team : CCB professional team tailors Green Finance Solutions for corporate customers and facilitates them to obtain third-party certifications.

Bank of China –

Green Loan : Any type of loan instrument made available exclusively to finance or re-finance, in whole or in part, new and/or existing eligible Green Projects. Green loans must align with the four core components of the Green Loan Principles.
Sustainability Linked Loan : Any types of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) which incentivise the corporate’s achievement of ambitious, predetermined sustainability performance objectives.

Green Finance – AmiGo Green

According to UPS, 81% of small- and medium-businesses say it is important for their business to purchase from suppliers that demonstrate a commitment to sustainability. This includes carriers. They also expect their carriers to show some level of commitment to sustainability. This is partially due to the fact that companies consider their carriers to be generally contributing to unsustainability.

As a one-stop supply chain finance eMarketPlace, FreightAmigo firmly believes that we have the responsibility to promote green logistics technology in the industry. Through collaboration with stakeholders, we can reduce carbon footprint in the supply chain, strive for sustainable development and attain the vision of a green supply chain. With our Big Data and AI Technology, corporates can achieve their set KPIs to lower carbon emission, save operation costs and greatly increase their competitiveness in the application for sustainable funding.

We offer data transparency with carbon emission calculator which allows clients to save energy and choose the greenest solution with one-click. Transparent carbon emission data allows corporates to design and implement its green strategies effectively. Our fully digitalised platform provides digital shipping documents and e-invoices with carbon emission equivalent. This does not only reduce time effectively and cost, but also optimizes operation management efficiency.