Bank of Singapore (BOS), the private banking arm of OCBC [OCBC:SP], unveiled a new investment financing assessment framework that lifted the loan quantum for mutual funds with high ESG ratings, as reported by The Business Times on July 13. The new framework increased the advance ratio, or the maximum amount of extended loan as a percentage of the collateral’s market value, by 5% for accepted mutual funds with MSCI [MSCI:US] ESG ratings of AAA or AA. To illustrate, a client with USD100m in accepted mutual funds could receive an additional USD5m for investment financing. According to BOS, the bank’s assessment framework is the first of its kind in Asia to incorporate ESG considerations on top of other factors such as asset liquidity and volatility.
As an incentive to promote ESG investment, the new framework adds to the various sustainability commitments made by BOS as well as its parent OCBC. Currently, over 50% of BOS’s assets under management (AUM) have MSCI ratings of BB and above, which the bank refers to as sustainable investments. Among these investments, more than 130 acceptable mutual funds obtained ratings of AAA or AA. Furthermore, OCBC reported a sustainable finance portfolio of over USD10bn in 2020 and set the goal of expanding the portfolio to USD25bn by 2025. The bank also invested USD30m this July on sustainability training for employees.
The move also came against the backdrop of growing ESG awareness in the fund market. Last year, the size of ESG funds in Asia excluding Japan reached USD25.4bn, growing 131% YoY, according to MSCI. More than half of the ESG funds in Asia were equity mutual funds. A similar pattern was observed globally, but ESG funds only represented 4.3% of the over 40,000 mutual funds worldwide at present. In addition, MSCI’s research also found a considerable regional discrepancy in the funds’ ratings, with nearly two-thirds of AAA-rated funds focusing on Europe while ratings for Asia-focused funds averaging at B- and CCC.