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Taiwan completes its first sustainability-linked loan

Taiwan has marked a milestone in sustainable development, with DBS Bank Taipei Branch signing a three-year, $2 billion Taiwanese dollar (NT$) – about US$64 million – sustainability-linked loan with local electronic manufacturer AU Optronics.

The deal represents the first sustainability-linked loan in Taiwan and the first of its kind for an IT company in Asia Pacific. The loan was evaluated based on a series of environmental, social and governance (ESG) performance metrics.

DBS says that it is partnering with customers to remain at the forefront of their industries, as sustainability considerations are gaining more attention globally.

By launching Taiwan’s first sustainability-linked loan, which pegs the interest rate to sustainability performance targets, the bank hopes to encourage more customers to build businesses that will leave a positive impact for the future.

Good track record

AU Optronics (AUO), which specialises in display panel manufacturing has been listed on the Dow Jones Sustainability Index (DJSI) for nine consecutive years. It is also on the MSCI World ESG Leaders Index and the FTSE4Good Index. In addition, it has been ranked among the top 5% in Taiwan Stock Exchange’s Corporate Governance evaluation.

AUO has an excellent performance track record in diversified areas such as corporate governance, environmental sustainability, science education, culture preservation, social citizenship and inclusive workplace.

Lim Him Chuan, general manager of DBS Bank (Taiwan), comments: “There is a growing trend for corporates to adopt more sustainable practices in their business operations. While seeking business growth, they are also considering social, environmental and governance factors.”

In 2018, DBS Group completed four sustainability performance-linked loans amounting to over $600 million Singapore dollars (SGD) – US$435 million), demonstrating the bank’s commitment to sustainability while offering financial innovation to customers.

Tony Luo, head of Institutional Banking Group at DBS Bank (Taiwan) says, “The core value of a sustainability-linked loan is to incentivise and reward corporations to advance their sustainability agenda.”

Corporates applying for DBS Bank’s sustainability-linked loans  are evaluated based on an annual sustainability review report assessed by an external independent party, tracking the performance of corporates in terms of governance, environmental and social criteria.

When the borrower meets or exceeds pre-determined ESG targets, the interest rate is reduced. Borrowers not only share their commitment to sustainability but are also entitled to a competitive interest rate.

Luo adds that unlike green loans which are used to exclusively finance or re-finance eligible green projects, capital from sustainability-linked loans can be used for general corporate purposes. This provides more flexibility to borrowers, and the impact goes beyond environmental aspects to cover an organisation’s comprehensive ESG developments.

In 2018, DBS became the first bank in Southeast Asia and one of five Singapore-listed companies to be included in the DJSI Asia Pacific. The index serves as a valuable reference point for investors and companies and consists of businesses that have committed to corporate sustainability practices, and which seek to create long-term stakeholder value.

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