What is a Green Loan?
With the rise of green and sustainability-linked loans & bonds (among other products), the debt market has matured to provide solutions to the climate crisis. Green loans provide a clear incentive to allocate capital towards decarbonization projects. Where a project meets the relevant ESG criteria, and a green clause has been written into the transaction, it can be labelled a green loan. This can benefit the borrower in the form of a lower coupon, or a variable exit fee based on the project’s performance against a set of targets.
Green debt provides a mechanism for borrowers to benefit directly from improving the environmental and/or social performance of their assets through lower lending costs, and for lenders to allocate capital to more sustainable assets, improving the ESG profile of their loan book.
How does a Green Loan benefit my business?
Projects that yield a positive environmental and/or social outcome can be eligible for sustainable financing. You can take advantage of the credit spread typically awarded to sustainable projects, to decrease your capex and raise the profile of your asset.
Green Loans are sustainable financial transactions whose outcome is tied to quantitative ESG targets. Some examples include:
- KWh saved
- Scope 1,2&3 CO2e emissions reduced
- Circular economy adapted products used
- BREEAM certification achieved (excellent or above)
- Water/waste management measures included
The use of a Green Loan will aid the presentation of your asset as best-in-class in ESG performance and award you a marginal discount on the coupon or exit fee of the loan.
Green loans can be used to finance:
- Infrastructure projects (e.g., renewable energy)
- Pollution prevention, water and land conservation, and biodiversity projects
How does a Green Loan work?
Loans and sustainable-linked financial transactions are governed with the Loan Market Association’s Principles. In order to meet market standards, you need to draft a comprehensive Sustainable Finance Framework that defines your policies and governance relating to the following principles:
- Use of Proceeds
- Process for Project Evaluation and Selection
- Management of Proceeds
Based on this Framework, green loan opportunities can be identified and their progress against targets can be tracked during the allocation and post-allocation phase of the project.
How can Longevity help you?
Longevity Partners offers advisory services and Second Party Opinions for your debt financing. We help you create the governance structure needed to pursue green loan financing and report annually on the progress of your transaction against the KPIs set in the green clause of the agreement.
- Longevity drafts a Sustainable Finance Framework, defining policies and governance in relation to use of proceeds, process for project evaluation and selection, management of proceeds, and reporting. This document can be drafted for either the borrower or the lender; when issuing a green loan, the two parties need to agree on the governing principles set by the document.
- Longevity tracks green loan opportunities across your financial transactions and applies the Framework to take advantage of the financial incentives present when issuing green loans.
- Longevity issues annual reports on your green loan which track projects against the progress of the scheme to determine whether the drawdown on the relevant loan(s) has been spent to achieve the selected KPIs.
- Longevity provides an independent Second Party Opinions (SPO) of transactions alignment to market principles, regulations, and best practice in the market. Our SPOs that assure borrowers and lenders to the quality of a green loan, benchmark targets against international frameworks, and align the transaction to the LMA/ICMA criteria.
With our SPOs, Longevity assesses project’s compliance with the relevant LMA/ICMA Green, Sustainability-linked, and Social Loan Principles. We also assess the fitness of Use of Proceeds against requirements for Project Evaluation & Selection, as well as the Client’s targets as set out in the relevant Sustainable Finance Framework. Further, we use an independent assessment methodology to determine the project’s fitness against a set of minimum eligibility criteria and map the alignment against the EU Taxonomy.
SUSTAINABLE FINANCE FRAMEWORK
Our team of experts can create a Sustainable Finance Framework to aid the access to green loan/bond financing. The Framework is a document that allows lenders or borrowers to define the governance of their sustainable financial transactions. The Framework is aligned to and follows the standards set by the LMA/ICMA principles which reflect best practices in sustainable financing. Further, the Framework maps eligible projects against the EU Taxonomy methodology to allow ease of reporting. With a Framework in place, you can issue a green loan and may realise a discount on the loan’s coupon when compared to a traditional financial transaction.
SECOND PARTY OPINIONS
We offer a Second Party Opinion service to review Green Loans or Sustainability Linked finance frameworks. We assure borrowers and lenders to the quality of a green loan, benchmark targets against international frameworks, and align the transaction to the LMA/ICMA criteria.
Longevity provides an independent Second Party Opinion (SPO) of the transaction’s alignment to market principles, regulations, and best practice in the market. Our SPOs are aligned with the LMA/LSTA guidelines for external reviews.
Sustainable Finance Services:
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