Green lending refers to a

lending In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...

dependent on

environment Environment most often refers to: __NOTOC__ * Natural environment, all living and non-living things occurring naturally * Biophysical environment, the physical and biological factors along with their chemical interactions that affect an organism or ...

al criteria for the planned use of funds. It is part of the wider

sustainable investing Socially responsible investing (SRI), social investment, sustainable socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social ...

and aims to reduce the impact on the environment of new lending activities.

History

Starting in 2005 major US banks such as

Wells Fargo Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, California; operational headquarters in Manhattan; and managerial offices throughout the United States and intern ...

(July 2005, $1bn over 5 years) and

Bank of America The Bank of America Corporation (often abbreviated BofA or BoA) is an American multinational investment bank and financial services holding company headquartered at the Bank of America Corporate Center in Charlotte, North Carolina. The bank w ...

(March 2007, $20 bn) 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. In 2018 the

Loan Market Association The Loan Market Association (LMA) was formed in December 1996 and is based in London, UK. Its initial aim was to assist in the development of the secondary loan market in Europe. Its intention was to develop industry best practice and standar ...

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. The list of projects that qualify as green is based on the list that the

International Capital Market Association The International Capital Market Association or ICMA is a self-regulatory organization and trade association for participants in the capital markets. ICMA stated aims are to promote high standards of market practice, appropriate regulation, trad ...

uses to define

Green Bonds Green bonds (also known as climate bonds) are fixed-income financial instruments ( bonds) which are used to fund projects that have positive environmental and/or climate benefits. They follow the Green Bond Principles stated by the Internationa ...

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 first “green” syndicated credit facility in Europe URW/LBG was shortly followed by

ING Group The ING Group ( nl, ING Groep) is a Dutch multinational banking and financial services corporation headquartered in Amsterdam. Its primary businesses are retail banking, direct banking, commercial banking, investment banking, wholesale bankin ...

arranging a sustainability-linked loan to

Philips Koninklijke Philips N.V. (), commonly shortened to Philips, is a Dutch multinational conglomerate corporation that was founded in Eindhoven in 1891. Since 1997, it has been mostly headquartered in Amsterdam, though the Benelux headquarters i ...

. 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. By June 2018,

Bloomberg News Bloomberg News (originally Bloomberg Business News) is an international news agency headquartered in New York City and a division of Bloomberg L.P. Content produced by Bloomberg News is disseminated through Bloomberg Terminals, Bloomberg Televi ...

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 Sustainalytics, a Morningstar Company, is a company that rates the sustainability of listed companies based on their environmental, social and corporate governance (ESG) performance. The company was born of a merger between Toronto-based Jantzi ...

. As shown on Environmental Finance's list of sustainability loans, several other banks have teamed with various ESG ratings agencies. In September 2018, five banks, including

BBVA Banco Bilbao Vizcaya Argentaria, S.A. (), better known by its initialism BBVA, is a Spanish multinational financial services company based in Madrid and Bilbao, Spain. It is one of the largest financial institutions in the world, and is present ...

, structured a revolving credit facility (RCF) for the Italian power utility A2A in a finance deal valued at 400 million euros. The syndicated loan avails 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 A circular economy (also referred to as circularity and CE) is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. CE aims ...

and decarbonation). The solicited ESG rating is provided annually by

Standard Ethics Aei Standard Ethics is an independent sustainability reporting rating agency based in London, known for its sustainable finance and ESG (Environmental, Social and Governance) studies. In 2001, it introduced a standardised approach to sustainability ...

References

{{activism-stub Environmental economics Environmentalism Ethical banking Green politics

History

ESG ratings and green loans

See also

References