The green criteria

We’ve seen more lenders offering green finance products in recent years – such as green loans, green mortgages or sustainability-linked loans – and according to Bloomberg, a significant proportion of lending is now tied to ESG goals.

While there is no globally recognised eligibility criteria for green loans, guidance suggests that a retrofit project may qualify as green if there is “material improvement” in energy efficiency, and a “material reduction” in the carbon emissions associated with the building.

The building or project will need to remain green (i.e. adhere to the green project criteria) for the life of the loan, and all loan proceeds earmarked as green must be used for an eligible green project. If this isn’t the case, this will be a “green breach” and (subject to the expiry of remedy periods) the loan will be reclassified to a traditional loan from the date of the breach.

The details and consequences of a breach can vary, depending on the requirements of the lender(s) and the nature and severity of what happened. The consequences (and potential remedies) will need to be considered ahead of entry into a facility agreement and documented accordingly.