29 November 2023

Banks can now tap on artificial intelligence (“AI”) when issuing sustainability-linked loans (“SLLs”) in the real estate sector through a minimum viable product (“MVP”) announced by the Monetary Authority of Singapore (“MAS”) on
14 November 2023. The MVP was developed by the Project NovA! consortium which has concluded the first phase of its work.

Project NovA! was launched in 2021 as part of the National Artificial Intelligence (AI) Programme in Finance. Led by MAS and the Smart Nation Digital Government Office (SNDGO), and developed in collaboration with industry experts, NovA! is a platform that leverages AI and data analytics to support financial institutions and companies on their sustainability journey.

SLLs incentivise environmentally sustainable business activities by tying a borrower’s interest rates to their achievement of pre-determined sustainability performance targets (“SPTs”). As outlined in MAS’ press release, the MVP has built in the following three core features to address key challenges faced by banks in extending SLLs:

  • Peer and industry benchmarking to set performance targets for SLLs in real estate sector: By harnessing data from government sources and conducting property-specific peer and industry comparisons, AI technology can be used to help banks set key performance indicators judiciously and establish practical SPTs, to enable a more accurate sustainability assessment. The benchmarking helps banks and lenders to avoid making their loans unattractive and reduces the risk of greenwashing by borrowers.
  • Monitor against selected key performance indicators (KPIs)/SPTs to curb greenwashing: By using buildings’ energy consumption data on a continuous basis at-source, banks can compare borrowers’ current sustainability performance with the agreed SPTs on a timelier basis. Risk assessment teams from banks can swiftly identify discrepancies, ensure SLLs maintain their intended impact, and curb greenwashing.
  • Enhance processing sustainable finance transactions through Autonomous Documentation Insights Engine (ADIE): This feature utilises Natural Language Processing to enable banks’ relationship managers, know-your-client teams, and sustainable finance units to extract sustainability insights, such as a company’s total greenhouse gas emissions, swiftly and accurately from diverse sources. This is a shift away from manual processing of disclosure documents, allowing for more informed decision-making based on comprehensive data extracted from borrower disclosures.

The NovA! consortium also published a white paper which documents the methodology used in the MVP system.

Senior Minister of State Tan Kiat How announced the launch of Phase 2 of NovA! on 14 November 2023 at the Singapore FinTech Festival 2023. In Phase 2 of Nova!, MAS will collaborate with Building and Construction Authority (“BCA”) to tap on BCA’s Super Low Energy Building (SLEB) database, to enable NovA! to access country-wide data on green buildings. This will help banks to identify prospective green building projects, achieve real-time SPTs monitoring, and accelerate green financing within the real estate sector.

Reference materials

The following reference materials are available on the MAS website www.mas.gov.sg: