Green lending refers to a lending dependent on environmental criteria for the planned use of funds. It is part of the wider sustainable investing and aims to reduce the impact on the environment of new lending activities. It includes green bonds (debt), green loans (often linked to a specific project) and sustainability-linked loans (typically tied to sustainability performance objectives).[1]
Starting in 2005 major US banks such as Wells Fargo (July 2005, $1bn over 5 years)[2] and Bank of America (March 2007, $20 bn)[3] started dedicating financing toward sustainable entrepreneurship. This usually meant financing the building of environmentally sustainable or friendly buildings or enterprises. The green lending initiative appear to have been taken by the lenders as opposed to borrowers.[4]
In 2018 the Loan Market Association in the UK issued Green Loan Principles to ensure any green loan is used for eligible green projects. This includes stating that this must be clearly articulated in the finance documents along with the expected environmental benefits, which must be assessed, quantified, measured and reported by the borrower.[5] The list of projects that qualify as green is based on the list that the International Capital Market Association uses to define Green Bonds.
In April 2017, Unibail-Rodamco-Westfield put in place a green loan of €650Mn with a banking syndicate led by Lloyds Banking Group as sole co-ordinator and green co-ordinator. This was the world's first 'sustainability linked loan', having a margin linked to ESG Key Performance Indicators.[6] [7]
URW/LBG was shortly followed by ING Group arranging a sustainability-linked loan to Philips. Both facilities coupled the interest rate of the loans to the company's sustainability performance, either by reference to an external sustainability ratings, or Key Performance Indicators agreed with the syndicate banks.[8] [9] By June 2018, Bloomberg News reported that ING Group had closed 15 similar deals where the bank would lower the cost of borrowing by between 5% and 10% based on the company's ESG rating provided by Sustainalytics.[10] As shown on Environmental Finance's list of sustainability loans, several other banks have teamed with various ESG ratings agencies.[11]
| Date | Company | Amount | USD equivalent ($m) | Country | Loan type | Use of proceeds | Objective/KPI | Pricing | Duration | |
|---|---|---|---|---|---|---|---|---|---|---|
| April 2017 | Unibail Rodamco | €650m | 760 | France | Syndicated RCF | General corporate purpose | Individual KPIs linked to environmental performance | Meeting KPIs results in a reduction in margin paid to banks | 2022 | |
| April 2017 | €1bn | 1170 | Netherlands | Syndicated RCF | General corporate purpose | If the rating goes up, the interest rate goes down—and vice versa. | 2022 | |||
| June 2017 | €750m | 870 | Switzerland | Syndicated RCF | General corporate purpose | If the ESG rating goes up, the interest rate goes down—and vice versa. | 2022 | |||
| July 2017 | €330m | 380 | Spain | Bilateral RCF | - | Sustainability improvement | Partially index-linked to the environmental, social and corporate governance impact of the company. | Over four years with the possibility of an additional year. | ||
| October 2017 | €100m | 118 | Spain | Bilateral RCF | - | Sustainability improvement | - | |||
| October 2017 | €15m | 18 | Belgium | Bilateral term loan | - | Sustainability improvement | - | - | ||
| October 2017 | bPost SA | €300m | 354 | Belgium | Syndicated RCF | - | Sustainability improvement | - | ||
| November 2017 | $150m | 150 | Singapore | Bilateral RCF | General corporate purpose | If the rating goes up, the interest rate goes down —and vice versa. | - | |||
| December 2017 | €800m | 944 | Spain | Syndicated loan | General corporate purpose | If the rating goes up, the interest rate goes down —and vice versa. | - | |||
| December 2017 | €50m | 59 | France | Bilateral loan | - | Sustainability improvement | - | - | ||
| December 2017 | Not disclosed | Not disclosed | Switzerland | Bilateral RCF | - | Sustainability Improvement | - | - | ||
| May 2017 | €150m | 164 | France | Bilateral RCF | General corporate purpose | If the rating goes up, the interest rate goes down —and vice versa. | NA | |||
| February 2018 | €2bn | 2500 | France | Syndicated credit facility | General corporate purpose | Incentive scheme linked to the two KPIs | - | |||
| February 2018 | €1bn | 1250 | Spain | Syndicated credit facility | General corporate purpose | If the rating goes up, the interest rate goes down —and vice versa. | Extended its maturity period until 2023 (open to a possible extension) | |||
| March 2018 | $500m | 500 | Singapore | Loan | General corporate purpose | Scores granted by Sustainalytics on 50 ESG linked criteria | If the targets are reached on all scores, the interest rate goes down —and vice versa. | Three years | ||
| April 2018 | €600m | 738 | Switzerland | Loan | General corporate purpose | If the ESG rating goes up, the interest rate goes down —and vice versa. | - | |||
| April 2018 | $80m | 80 | Russia | Bilateral RCF | - | Sustainability improvement | If the Sustainalitics score for Polymetal improves, the interest rate for the loan will be decreased. Conversely, if the Sustainalytics score deteriorates, the interest rate will increase. | - | ||
| June 2018 | $1.4bn | 1400 | US | Syndicated RCF | - | New credit facilities allow CMS to reduce its interest rate by meeting targets related to environmental sustainability, specifically renewable energy generation | - | - | ||
| June 2018 | $2.5bn | 2500 | US | Syndicated RCF | - | Sustainability indicator will be independently verified by the agency Vigeo Eiris. | Price-adjustment mechanism based on the continuous reduction of AVANGRID's emission intensity. | 2023 | ||
| May 2018 | €2bn | 2380 | Italy | RCF | General corporate purpose | ESG Score | The cost is linked both to targets on green investments and to progress made on sustainability initiatives. | 3 years | ||
| July 2018 | £100m | 130 | UK | Term loan | - | Pennon Group receives a reduced margin on the loan if targets are achieved | 5 years | |||
| September 2019 | Energa | PLN2bn | 500 | Poland | Loan | - | Sustainability indicator will be independently verified by the agency Vigeo Eiris. | If the ESG rating goes up, the interest rate goes down - and vice versa. | 5 years | |
| December 2019 | not indicated | not indicated | Singapore | Loan | Purchase of Aircraft | Fixed | 10 years |
In September 2018, five banks, including BBVA, structured a revolving credit facility (RCF) for the Italian power utility A2A in a finance deal valued at 400 million euros. The syndicated loan availed itself of a margin mechanism based on two parameters: the performance of two selected KPIs (waste processing capacity and the volume of renewable energy sold in the wholesale market, emphasizing the focus of the A2A Group on the circular economy and decarbonation). The solicited ESG rating was provided annually by Standard Ethics Aei.[12] [13]