HK sees significant growth in financing for small firms to buy sustainable equipment Widespread concern over the environment has resulted in government initiatives to push businesses to go green. Unlike resource-rich multinational companies, small and medium-sized enterprises (SMEs) have limited knowledge and funds to comply with these stringent standards. They are feeling the pinch when changing over to costly sustainable equipment to improve productivity. Local banks and trade associations have taken the hint, and there has been significant growth in financing such equipment for small firms. Green financing involves providing favourable credit terms to companies that purchase equipment built to specifications that minimise environmental impact. In return, banks benefit from being associated with helping the environment while building a long-term relationship with the client and earning income from interest. The Business Environment Council (BEC) and Hongkong and Shanghai Banking Corporation (HSBC) started the Green Equipment Financing scheme 18 months ago. BEC chief executive Andrew Thomson estimated he had received about 100 applications so far. 'We like to make lending more attractive and try to keep it simple and flexible,' he said. 'BEC serves as a consultant and validates the eligibility of applicants in terms of resources consumption and pollution control. There won't be any lending unless measurable benefit is sufficient to address the environmental challenge.' Dr Thomson advises companies to fulfil at least one of the environmental protection criteria: saving energy, water reduction, increased efficiency of consumption of production materials, reduction of waste production and decreasing air, land or water pollution. Most applications have come from large and medium-sized companies with factories in sectors such as printing, textiles, food and beverages and electronics. Incentives include interest rebates and a principal repayment moratorium on a new loan for buying green equipment. 'The developed world is aiming at an 80 per cent carbon reduction whereas the developing world eyes 50 per cent by 2050,' said Dr Thomson. 'The outlook for green technology is obviously good and growth is extremely quick. Green equipment financing offers one of the ways to access cheap capital.' Seeing the potential behind the green initiative, the Hong Kong Productivity Council (HKPC) also launched a green financing scheme last April by collaborating with green groups and strategic partners from five banks: Bank of China (Hong Kong), Dah Sing Bank, Hang Seng Bank, Bank of East Asia and HSBC. The partnership targets SMEs by providing flexible and preferential loan terms to companies for investment in equipment to reduce energy consumption and emissions. According to Tsang Kam-lam, HKPC general manager of environmental management, the service remains strong despite the volatile economic situation. 'The bankers may be more careful when evaluating each application but, based on our information, there is no suspension or tightening of loan services and companies continue to gain approval for funds,' said Mr Tsang. According to Mr Tsang, equipment financing has a long history but green financing is a new concept. 'We have sensed the burgeoning demand in the past few years thanks to new regulations. Today, corporates pay more attention to environmental protection and to buying energy-saving tools to fulfil law requirements,' he said. 'Our role is to conduct technical assessments and review such equipment. We check to see if it's within the scope of green financing. Then we send recommendations to banks, which then consider the credit and risk control. The response has been good and we've got 48 applications to date. More than 80 per cent come from the manufacturing sector, followed by construction and then the service sector. Currently, there are about 56,000 factories engaged in light-industry activities such as textiles, toys, plastics and metals within Guangdong province alone. Many have received investment from Hongkongers and are affected by new green rules implemented by the government.' Banks such as Citic Ka Wah Bank saw this trend a few years ago and engaged with the United States Consulate's P2E2 (pollution prevention and energy efficiency) project. Mike Wood, senior vice-president and head of commercial real estate lending and project finance for Citic's wholesale banking group, said the concept was not a new trend and was already popular in Singapore, Japan and Australia. 'In fact, people are taking the concept more seriously now thanks to rising concern over the environment and food safety,' said Mr Wood. 'Enforcement has become a bigger thing. Our CEO championed the green initiatives from top down. However, green equipment financing is still new to the Hong Kong market. In the next few years, there will be growth as you see more lobbying in China by pressure groups.' Therefore, the bank treats this as a new concept and focus rather than a platform. It doesn't have any specific products or a full-time team dedicated to this segment. 'Owing to the generic product nature, it's similar to equipment loans and leasing, which require general banking skills,' explained Mr Wood. 'We have a central referral point and reinvent things using existing resources we have. Basically, we apply the same discipline, procedure and evaluation as we do with other industries. Whether we need a separate team, it depends on how the industry develops.' So far, the bank's clients include large corporations involved with businesses such as wind power plants, water and waste-water treatment projects, energy-saving products and technology projects. 'Small business operators don't have the track record to raise loans and P2E2 is a mechanism to facilitate financing for small companies. We are devising a way to cater to them while BEC and professional firms evaluate the projects,' said Mr Wood.