Green loan; It is a form of financing that allows borrowers to use their income only to finance projects that contribute to an environmental goal.
In April 2017, Unibail-Rodamco-Westfield, a banking association led by Lloyds Banking Group as sole coordinator and green coordinator, was awarded a green loan of €650 million. A sustainability-related loan adjustment by ING Group to Philips soon followed URW/LBG.
What Makes a Loan a Green Loan?
For a loan to be called a green loan, it must be structured by the principles of green loan, which provides an international standard based on four essential components. First of all, the usage area of the revenues should be determined. Identified green projects should be evaluated, scaled, and reported by borrowers with their net benefits to the environment.
The borrower of the green loan should clearly state their organizational structure for evaluating and selecting projects. In addition, the borrower should explain how it will manage the environmental and social risks of the appropriate project. To maintain transparency and support the integrity of the product, green credit proceeds must be deposited into a particular account or tracked by the borrower. Revenue utilization, project evaluation, selection process, revenue management, and reporting are the four key elements required for green credit.
What are the Benefits of Taking a Green Loan?
Working on Green Loans leads to developing sustainability-related governance, strategy, and risk management structures. It also helps to meet the information disclosure requirement on ESG. It improves the borrower's medium and long-term ESG assessment. It is an element that increases corporate value. Green projects are actively encouraged by providing green loans to borrowers. Institutions will have stepped into a process where they will begin to be accepted by the public. Obtaining green loans and disclosing relevant information will create new relationships with financial institutions that value ESG loans to borrowers. Companies are offered the opportunity to consolidate their fund base.
What are the Advantages of Giving Green Loans?
Green loans also provide a stable cash flow if borrowers do not repay the loan. Lenders are actively investing in ecological balance with green loans. It allows them to show their support for green projects. Thus, a positive public opinion will be created. Lenders ensure the sustainability of environmental benefits by analyzing and evaluating non-financial information about environmental benefits and other factors disclosed by the borrower. By investing in factors that reduce the negative impacts on the environment, they will have acted against climate change. It is an instrument that leads to the preservation and development of corporate value.
What are the Environmental Benefits of Green Loan?
Increasing green loans will significantly reduce greenhouse gas emissions. It is expected to contribute to the prevention of the degradation of natural capital. Encouraging green projects lowers energy costs. It strengthens energy security. It stimulates the regional economy and increases resilience in disaster situations. The construction of green buildings, rehabilitation of buildings, or measures in existing buildings increase energy efficiency. It reduces greenhouse gas emissions and contributes to adaptation to climate change. Fossil fuel is not used in the vehicles procured within the scope of the project to be able to give green credit. This also reduces air pollution.
As a result, financial institutions will increase brand evaluations and protect payment financing by giving green loans. Companies that receive green credit will create brand value with their environmentally friendly policies and simultaneously reduce carbon emissions. With green credit, banks and companies will show growth and development with a win-win model.
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Çağın Ergün
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