A supplier asked by a major customer to reduce emissions, change materials or improve energy efficiency may need to buy equipment, retrofit facilities, alter production processes or raise additional working capital. For smaller businesses, those costs often arise before the commercial benefits are visible. Banks still have to determine whether the investment is affordable and whether expected cash flow is sufficient to service the debt.

DBS outlined its approach at DBS Sustainability Day 2026 in Singapore on 15 September, which marked the graduation of 50 companies from the second cohort of its ESG Ready Programme. Developed with Enterprise Singapore, the programme is intended to help small and medium-sized enterprises (SMEs) measure their environmental impact and identify the investments required.

Shilpa Gulrajani, Head of Sustainable Finance, Institutional Banking Group at DBS, said banks may also consider demand from a supplier’s larger corporate customers when assessing credit. In that approach, the sustainability assessment identifies the funding requirement, while the buyer relationship provides additional information about expected demand.

Customer requirements are turning sustainability into a capital need

Singapore aims to incorporate environmental sustainability considerations into all government procurement by 2028, according to Low Yen Ling, Senior Minister of State for the Ministry of Trade and Industry and the Ministry of Culture, Community and Youth. Environmental considerations already apply to 60% of government procurement by contract value.

Low said SMEs are not currently required to publish climate reports, but customers may still ask them for information on emissions, materials and environmental practices. Larger local companies and multinational corporations facing their own reporting requirements can pass those demands down their supply chains.

DBS’s annual Business Pulse Check Survey, which polled 730 companies across diverse industries between December 2025 and January 2026, found that 49% considered themselves sustainability-ready, up from about one-third a year earlier. The proportion that considered themselves unprepared fell from 60% to 27%.

Chen Ze Ling, Group Head of Corporate and SME Banking at DBS, said businesses were pursuing sustainability to meet customer requirements, reduce costs, build resilience and gain new business. For some suppliers, retaining customers or remaining eligible for tenders can require investment in equipment, lower-energy processes or production changes. Lenders then need to assess the amount of capital required, the effect on costs and revenue, and the borrower’s capacity to repay.

ESG assessments can define the funding requirement

The ESG Ready Programme combines sustainability training, carbon assessment and support in developing sustainability strategies. More than 160 businesses had entered the programme by September 2026. Of these, 73 had graduated: 23 in the first cohort and 50 in the second. Chen said 79% of graduates surveyed had implemented their sustainability roadmaps.

Participating companies complete a carbon assessment on ESGpedia, a digital sustainability data platform, to establish their carbon footprint and produce a greenhouse gas report. ESGpedia describes its carbon-accounting methodology as validated against International Organization for Standardization standard ISO 14064 and aligned with the Greenhouse Gas Protocol.

Low said the 73 companies had measured and reported their carbon emissions and developed reduction plans, with the number expected to reach 100 by the end of 2026. She also cited investments by participants in solar installations, partial fleet electrification and automation intended to reduce energy consumption and operating costs. Such assessments can identify specific funding requirements for equipment, retrofits, energy-efficiency improvements or working capital.

Gulrajani said many Asia-Pacific companies require funding for working capital, capital expenditure, research and development, and other investments rather than for a single large green project. Sustainability-linked financing is one structure available to companies whose financing terms are tied to agreed performance targets, including reductions in energy or water consumption. For SMEs, the financing requirement may therefore span several areas of the business rather than a single eligible green asset.

Large buyers may provide additional information on repayment capacity

Gulrajani said established relationships with large corporate buyers could give banks greater visibility over demand and may improve access to capital for SME suppliers. In sectors such as semiconductors, food and agriculture, a bank may assess a supplier within a wider commercial relationship that includes the larger buyer and expected demand for the supplier’s output. She said SMEs may obtain financing on terms they would not receive on a standalone basis because the bank gains “comfort on the anchor”.

The buyer is not necessarily guaranteeing the SME’s borrowing. An established purchasing relationship may instead give the bank greater visibility over expected demand and the revenue available to support repayment. The sustainability assessment identifies the investment to be financed, while the buyer relationship adds information about the business supporting it.

Gulrajani also described cases in which efficiency targets imposed by larger companies required retrofits supplied by mid-cap companies and SMEs, with larger companies able to anchor financing or provide greater visibility over demand for those suppliers.

The relevance of an anchor depends on the nature of the commercial relationship. A customer requirement on its own does not establish repayment capacity. Purchase commitments, recurring orders and other evidence of demand may form part of the information considered in the credit assessment.

Banks are testing more standardised approaches to SME sustainable finance

DBS disclosed in its 2025 Sustainability Report that sustainable-finance volumes to mid-cap companies and SMEs across its core markets increased by more than 60% during the year. The bank did not break out financing provided to ESG Ready participants.

Among regional peers, UOB also combines sustainability assessment with standardised financing incentives. It reported SGD 7.8 billion ($6.1 billion) in loans supporting SME sustainable business practices in 2025. Its Sustainability-Linked Advisory, Grants and Enablers Programme, developed with Enterprise Singapore, offers preferential loan rates to SMEs that meet agreed sustainability targets and can reduce eligible sustainability-service costs by up to 85%.

OCBC said the number of sustainability-linked loans it extended to SMEs more than doubled in 2025 and that more than 70% of those borrowers had fewer than 25 employees. It aims to support 12,000 SMEs across its four core markets by 2028, increasing commitments from nearly SGD 13 billion ($10.2 billion) at the end of 2025 to SGD 25 billion ($19.6 billion). Its SME Start-ESG Programme links baseline sustainability assessments with access to sustainability-linked loans, while its SME Sustainable Finance Framework is intended to make eligible facilities of up to SGD 20 million simpler and less costly to arrange.

At smaller loan sizes, the cost of structuring a facility, measuring performance and independently checking the transaction can account for a larger share of the economics than for a large corporate loan. Common measurement tools and standardised structures are intended to reduce some of those costs, while supplier relationships may give banks additional information about the commercial demand supporting the borrower.

For banks, the issue is whether sustainability and supplier data can be incorporated into SME lending without making assessment costs disproportionate to the size of the facility. Standardised measurement may reduce some of the information-gathering burden, but the effect on lending decisions will depend on how those data are used in credit assessment.

Financing conversion remains the missing measure

Lim Him Chuan, Country Head of DBS Singapore, said a survey of companies participating in ESG Ready found that, after two years, more than 70% reported being better able to comply with sustainability regulations, more than 60% said they were better able to meet customer needs, more than 50% reported lower energy consumption and more than 40% reported lower business costs.

Lower energy expenditure may affect cash flow and additional contracts may increase revenue visibility, but neither necessarily results in different financing terms. The effect on financing terms will depend on the connection between operating data and repayment capacity, as well as the reliability of expected demand from procurement relationships. Sustainability-related investment can then be considered alongside other capital expenditure and working-capital requirements within the lender’s existing credit process.

Looking ahead, financing take-up, ticket sizes, product types, pricing and loan performance would provide evidence of whether sustainability data and buyer relationships are affecting credit decisions. They would also show whether those factors are associated with wider access to capital or different borrowing costs for SME suppliers.