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.

History

Starting in 2005 major US banks such as Wells Fargo (July 2005, $1bn over 5 years)[1] and Bank of America (March 2007, $20 bn)[2] 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.[3]

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.[4] 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, ING Group issued the world's first sustainability-linked loan to Philips, coupling the interest rate of the EUR 1 billion loan to the company's sustainability performance.[5][6] 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.[7] As shown on Environmental Finance's list of sustainability loans, several other banks have teamed with various ESG ratings agencies, copying and building on the ING-Sustainalytics model:[8]

DateCompanyAmountUSD equivalentCountryLoan typeUse of proceedsObjective/KPIPricingDuration
April 2017Royal Philips€1bn1170NetherlandsSyndicated RCFGeneral corporate purposePhilips's sustainability performance and rating provided by SustainalyticsIf the rating goes up, the interest rate goes down—and vice versa.2022
June 2017Barry Callebaut€750m870SwitzerlandSyndicated RCFGeneral corporate purposeESG Score from SustainalyticsIf the ESG rating goes up, the interest rate goes down—and vice versa.2022
July 2017Gas Natural€330m380SpainBilateral RCF-Sustainability improvementPartially index-linked to the environmental, social and corporate governance impact of the company.Over four years with the possibility of an additional year.
October 2017Abertis€100m118SpainBilateral RCF-Sustainability improvementThe loan's interest rate is benchmarked to a sustainability rating from Sustainalytics-
October 2017SocFin€15m18BelgiumBilateral term loan-Sustainability improvement--
October 2017bPost SA€300m354BelgiumSyndicated RCF-Sustainability improvementESG rating in the pricing of the loan determined by Sustainalytics-
November 2017Wilmar$150m150SingaporeBilateral RCFGeneral corporate purposeESG Score from SustainalyticsIf the rating goes up, the interest rate goes down —and vice versa.-
December 2017Red Eléctrica de España€800m944SpainSyndicated loanGeneral corporate purposeESG Score from Vigeo EirisIf the rating goes up, the interest rate goes down —and vice versa.-
December 2017Casino Guichard Perrachon€50m59FranceBilateral loan-Sustainability improvement--
December 2017LafargeHolcimNot disclosedNot disclosedSwitzerlandBilateral RCF-Sustainability Improvement--
May 2017EDF€150m164FranceBilateral RCFGeneral corporate purposeESG Score from SustainalyticsIf the rating goes up, the interest rate goes down —and vice versa.NA
February 2018Danone€2bn2500FranceSyndicated credit facilityGeneral corporate purposeESG score provided by Sustainalytics and Vigeo Eiris / KPI: Part of Sales linked to subsidiaries certified by B CorpIncentive scheme linked to the two KPIs-
February 2018Mapfre€1bn1250SpainSyndicated credit facilityGeneral corporate purposeESG Score from Vigeo EirisIf the rating goes up, the interest rate goes down —and vice versa.Extended its maturity period until 2023 (open to a possible extension)
March 2018Olam$500m500SingaporeLoanGeneral corporate purposeScores granted by Sustainalytics on 50 ESG linked criteriaIf the targets are reached on all scores, the interest rate goes down —and vice versa.Three years
April 2018Adecco€600m738SwitzerlandLoanGeneral corporate purposeESG Score from SustainalyticsIf the ESG rating goes up, the interest rate goes down —and vice versa.-
April 2018Polymetal$80m80RussiaBilateral RCF-Sustainability improvementIf 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 2018CMS Energy$1.4bn1400USSyndicated RCF-New credit facilities allow CMS to reduce its interest rate by meeting targets related to environmental sustainability, specifically renewable energy generation--
June 2018Avangrid$2.5bn2500USSyndicated 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 2018Generali€2bn2380ItalyRCFGeneral corporate purposeESG ScoreThe cost is linked both to targets on green investments and to progress made on sustainability initiatives.3 years
July 2018Pennon£100m130UKTerm 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, SustainalyticsPennon Group receives a reduced margin on the loan if targets are achieved5 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 2019Avationnot indicatednot indicatedSingaporeLoanPurchase of AircraftSustainability indicator has been independently verified by the agency Vigeo EirisFixed10 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 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 and decarbonation). The solicited ESG rating is provided annually by Standard Ethics Aei.[9][10]

See also

References
  1. Green Lending: Top 10 Reasons Why Banks Lend to Sustainable Buildings
  2. Green Wombat: Bank of America Commits $20 Billion to Green Lending
  3. "Credit Agricole closes first two U.S. Green loans". Reuters. April 26, 2018.
  4. Tallat Hussain (March 22, 2018). "Green Loan Principles to Guide Environmental and Sustainability Finance".
  5. "ING and Philips collaborate on sustainable loan". ING. Retrieved 4 October 2018.
  6. Holder, Michael. "Philips agrees €1bn loan with interest rate linked to sustainability performance". Business Green. Retrieved 4 October 2018.
  7. Hirtenstein, Anna. "Going Greener Can Get You Cheaper Loans at This Dutch Bank". Bloomberg. Retrieved 4 October 2018.
  8. Roumpis, Nick. "The green and sustainability loan market: ready for take-off". Environmental Finance. Retrieved 4 October 2018.
  9. https://www.bbva.com/en/bbva-signs-new-sustainable-loan-italy-a2a/
  10. https://www.eticanews.it/in-breve/un-altro-sustainable-loan-per-le-utility-italiane-tocca-ad-a2a/
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