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, $20 bn) [3] started dedicating financing toward sustainable entrepreneurship. This usually meant financing the building of environmentally sustainable or friendly buildings or enterprises. The green lending initiative appear to have been taken by the lenders as opposed to borrowers. [4]
In 2018 the Loan Market Association in the UK issued Green Loan Principles to ensure any green loan is used for eligible green projects. This includes stating that this must be clearly articulated in the finance documents along with the expected environmental benefits, which must be assessed, quantified, measured and reported by the borrower. [5] The list of projects that qualify as green is based on the list that the International Capital Market Association uses to define Green Bonds.
In April 2017, Unibail-Rodamco-Westfield put in place a green loan of €650Mn with a banking syndicate led by Lloyds Banking Group as sole co-ordinator and green co-ordinator. This was the first “green” syndicated credit facility in Europe. [6] [7]
URW/LBG was shortly followed by ING Group arranging a sustainability-linked loan to Philips. Both facilities coupled the interest rate of the loans to the company's sustainability performance, either by reference to an external sustainability ratings, or Key Performance Indicators agreed with the syndicate banks. [8] [9] By June 2018, Bloomberg News reported that ING Group had closed 15 similar deals where the bank would lower the cost of borrowing by between 5% and 10% based on the company's ESG rating provided by Sustainalytics. [10] As shown on Environmental Finance's list of sustainability loans, several other banks have teamed with various ESG ratings agencies. [11]
Date | Company | Amount | USD equivalent ($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]
The International Finance Corporation (IFC) is an international financial institution that offers investment, advisory, and asset-management services to encourage private-sector development in less developed countries. The IFC is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States.
The European Bank for Reconstruction and Development is an international financial institution founded in 1991. As a multilateral developmental investment bank, the EBRD uses investment as a tool to build market economies.
The European Investment Bank (EIB) is the European Union's investment bank and is owned by the 27 member states. It is the largest multilateral financial institution in the world. The EIB finances and invests both through equity and debt solutions companies and projects that achieve the policy aims of the European Union through loans, equity and guarantees.
Debt is an obligation that requires one party, the debtor, to pay money borrowed or otherwise withheld from another party, the creditor. Debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. In financial accounting, debt is a type of financial transaction, as distinct from equity.
Crédit Agricole Corporate and Investment Bank is Crédit Agricole's corporate and investment banking entity. With a staff of 8,940 employees in 32 countries, Crédit Agricole CIB is active in a broad range of capital markets, investment banking and financing activities. Clients are primarily corporates, governments, and banks, with a small footprint in the investor segment.
A syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several commercial banks or investment banks known as lead arrangers.
The KfW, which together with its subsidiaries DEG, KfW IPEX-Bank and FuB forms the KfW Bankengruppe, is a German state-owned investment and development bank, based in Frankfurt. As of 2014, it is the world's largest national development bank and as of 2018 Germany's third largest bank by balance sheet. Its name originally comes from Kreditanstalt für Wiederaufbau. It was formed in 1948 after World War II as part of the Marshall Plan.
The Industrial Bank Co., Ltd., officially Fujian Industrial Bank Joint-Stock Corporation, Limited, is a commercial bank based in Fuzhou, Fujian province of the People's Republic of China. In 2023, the company was ranked 60th in the Forbes Global 2000.
An ethical bank, also known as a social, alternative, civic, or sustainable bank, is a bank concerned with the social and environmental impacts of its investments and loans. The ethical banking movement includes: ethical investment, impact investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, and social enterprise.
Socially responsible investing (SRI) is any investment strategy which seeks to consider both financial return and social/environmental good. The areas of concern recognized by the SRI practitioners are sometimes summarized under the heading of environmental, social and governance (ESG) issues: environment, social, and corporate governance. Impact investing is subset of SRI that is generally more proactive and focused on the conscious creation of social impact through investment. Eco-investing is SRI with a focus on environmentalism.
Unibail-Rodamco-Westfield SE is a French multinational commercial real estate company headquartered in Paris, France. Its history originates with the formation of two separate shopping centre operators, Unibail and Rodamco Europe, which merged in 2007 and became a societas Europaea in 2009. The company acquired Australian shopping centre operator Westfield Corporation in June 2018.
In 2007, the financial sector of Morocco maintained an economic environment conducive to further growth of banking activity following a very good year for the sector in 2006. Morocco's banks have been largely unaffected by the credit crisis due to their limited connection to global financial markets. The number of people with a bank account increased from 25% in 2007 to 29% in 2008, while deposits rose by 11.1% to a record Dh572.3bn (€51.5bn), 20% of which belong to Moroccan nationals living abroad. Private banks are increasingly moving towards universal banking, buying companies in all segments of the financial industry. While GDP advanced 5.6% in 2008, outstanding loans jumped 23% to a record Dh519.3bn (€46.74bn) as more people bought and furnished property. As the rest of the world saw lending dry up, Moroccan banks issued more loans, showing 2.6% growth in the first five months of 2009.
A Green bond is a fixed-income financial instruments (bond) which is used to fund projects that have positive environmental and/or climate benefits. They follow the Green Bond Principles stated by the International Capital Market Association (ICMA), and the proceeds from the issuance of which are to be used for the pre-specified types of projects.
Environmental, social, and governance (ESG), is a set of aspects, including environmental issues, social issues and corporate governance that can be considered in investing. Investing with ESG considerations is sometimes referred to as responsible investing or, in more proactive cases, impact investing.
The Global Alliance for Banking on Values (GABV) is an independent association of 'values-based banks' with a shared mission to use finance to deliver environmental, social, and corporate governance (ESG) positive outcomes. The GABV consists of over 60 member banks, credit unions and microfinance institutions, from a total of 44 countries. The group has 16 supporting partners. Its headquarters are in Amsterdam, Netherlands.
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 mainly in Spain, Portugal, Mexico, South America, Turkey, Italy and Romania.
A green bank is a financial institution, typically public or quasi-public, that employs innovative financing techniques and market development tools in collaboration with the private sector to expedite the deployment of clean energy technologies. Green banks use public funds to leverage private investment in clean energy technologies that, despite their commercial viability, have struggled to establish a widespread presence in consumer markets. Green banks aim to reduce energy costs for ratepayers, stimulate private sector investment and economic activity, and expedite the transition to a low-carbon economy.
Sustainalytics 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 Research, which was founded in 1992 by Sustainalytics' current CEO Michael Jantzi, and its European counterpart. Following its acquisition of GES International on January 9, 2019, Sustainalytics had more than 600 employees with offices in 17 cities around the world and over 700 institutional investor clients. On April 21, 2020, Morningstar, Inc. acquired the remaining ~60% of Sustainalytics' shares to become the sole owner.
Sustainable finance is the set of practices, standards, norms, regulations and products that pursue financial returns alongside environmental and/or social objectives. It is sometimes used interchangeably with Environmental, Social & Governance (ESG) investing. However, many distinguish between ESG integration for better risk-adjusted returns and a broader field of sustainable finance that also includes impact investing, social finance and ethical investing.
A Sustainability-linked bond (SLB) is a fixed income instrument (Bond) where its financial and/or structural characteristics are tied to predefined Sustainability/ESG objectives. The objectives are measured through predefined Key Performance Indicators (KPIs) and evaluated against predefined Sustainability Performance Targets (SPTs).