Green lending

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]

History

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.

ESG ratings and green loans

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 Royal Philips €1bn 1170 Netherlands Syndicated RCF General corporate purpose Philips's sustainability performance and rating provided by Sustainalytics If the rating goes up, the interest rate goes down—and vice versa. 2022
June 2017 Barry Callebaut €750m 870 Switzerland Syndicated RCF General corporate purpose ESG Score from Sustainalytics If the ESG rating goes up, the interest rate goes down—and vice versa. 2022
July 2017 Gas Natural €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 Abertis €100m 118 Spain Bilateral RCF - Sustainability improvement The loan's interest rate is benchmarked to a sustainability rating from Sustainalytics -
October 2017 SocFin €15m 18 Belgium Bilateral term loan - Sustainability improvement - -
October 2017 bPost SA €300m 354 Belgium Syndicated RCF - Sustainability improvement ESG rating in the pricing of the loan determined by Sustainalytics -
November 2017 Wilmar $150m 150 Singapore Bilateral RCF General corporate purpose ESG Score from Sustainalytics If the rating goes up, the interest rate goes down —and vice versa. -
December 2017 Red Eléctrica de España €800m 944 Spain Syndicated loan General corporate purpose ESG Score from Vigeo Eiris If the rating goes up, the interest rate goes down —and vice versa. -
December 2017 Casino Guichard Perrachon €50m 59 France Bilateral loan - Sustainability improvement - -
December 2017 LafargeHolcim Not disclosed Not disclosed Switzerland Bilateral RCF - Sustainability Improvement - -
May 2017 EDF €150m 164 France Bilateral RCF General corporate purpose ESG Score from Sustainalytics If the rating goes up, the interest rate goes down —and vice versa. NA
February 2018 Danone €2bn 2500 France Syndicated credit facility General corporate purpose ESG score provided by Sustainalytics and Vigeo Eiris / KPI: Part of Sales linked to subsidiaries certified by B Corp Incentive scheme linked to the two KPIs -
February 2018 Mapfre €1bn 1250 Spain Syndicated credit facility General corporate purpose ESG Score from Vigeo Eiris 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 Olam $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 Adecco €600m 738 Switzerland Loan General corporate purpose ESG Score from Sustainalytics If the ESG rating goes up, the interest rate goes down —and vice versa. -
April 2018 Polymetal $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 CMS Energy $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 Avangrid $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 Generali €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 Pennon £100m 130 UK Term loan - The loan requires the Pennon Group to meet ESG/Sustainability objectives and key performance indicators based on an ESG Index issued by independent ratings organisation, Sustainalytics 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 Avation not indicated not indicated Singapore Loan Purchase of Aircraft Sustainability indicator has been independently verified by the agency Vigeo Eiris 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]

See also

References

  1. ^ Hardyment, Richard (2024-02-02). Measuring Good Business. London: Routledge. ISBN 978-1-003-45773-2.
  2. ^ Green Lending: Top 10 Reasons Why Banks Lend to Sustainable Buildings[permanent dead link‍]
  3. ^ Green Wombat: Bank of America Commits $20 Billion to Green Lending
  4. ^ "Credit Agricole closes first two U.S. Green loans". Reuters. April 26, 2018.
  5. ^ Tallat Hussain (March 22, 2018). "Green Loan Principles to Guide Environmental and Sustainability Finance".
  6. ^ "URW green disclosures". URW. Retrieved 12 January 2022.
  7. ^ "Green Loans Sprout as Philips joins Unibail". GlobalCapital. 20 April 2017. Retrieved 12 January 2022.
  8. ^ "ING and Philips collaborate on sustainable loan". ING. 19 April 2017. Retrieved 4 October 2018.
  9. ^ Holder, Michael (21 April 2017). "Philips agrees €1bn loan with interest rate linked to sustainability performance". Business Green. Retrieved 4 October 2018.
  10. ^ Hirtenstein, Anna (4 June 2018). "Going Greener Can Get You Cheaper Loans at This Dutch Bank". Bloomberg.com. Retrieved 4 October 2018.
  11. ^ Roumpis, Nick. "The green and sustainability loan market: ready for take-off". Environmental Finance. Retrieved 4 October 2018.
  12. ^ "BBVA signs new sustainable loan in Italy with A2A | BBVA". 29 August 2018.
  13. ^ "Un altro sustainable loan per le utility italiane. Tocca ad A2aETicaNews - ETicaNews". 3 September 2018.
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