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Green Loan Principles – APLMA & LMA May 2020

17/09/2020

General

The Green Loan Principles (GLP) aim to facilitate and support environmentally sustainable economic activity and aid the development of a market-standard approach to green lending.

Green loans (GLs) are any type of loan instrument made available exclusively to finance or re-finance, in whole or in part, new and/or existing eligible green projects, including:

  • renewable energy – including production, transmission, appliances and products;
  • energy efficiency – such as in new and refurbished buildings, energy storage, district heating, smart grids, appliances and products;
  • pollution prevention and control – including reduction of air emissions, greenhouse gas control, soil remediation, waste prevention, waste reduction, waste recycling and energy/emission-efficient waste to energy;
  • environmentally sustainable management of living natural resources and land use – including environmentally sustainable agriculture, environmentally sustainable animal husbandry; climate smart farm inputs such as biological crop protection or drip-irrigation; environmentally sustainable fishery and aquaculture, environmentally-sustainable forestry, including afforestation and reforestation, and preservation or restoration of natural landscapes;
  • terrestrial and aquatic biodiversity conservation - including the protection of coastal, marine and watershed environments;
  • clean transportation – such as electric, hybrid, public, rail, non-motorised, multi-modal transportation, infrastructure for clean energy vehicles and reduction of harmful emissions;
  • sustainable water and wastewater management – including sustainable infrastructure for clean and/or drinking water, wastewater treatment, sustainable urban drainage systems and river training and other forms of flooding mitigation;
  • climate change adaptation – including information support systems, such as climate observation and early warning systems;
  • eco-efficient and/or circular economy adapted products, production technologies and processes – such as development and introduction of environmentally sustainable products, with an eco-label or environmental certification, resource-efficient packaging and distribution; and
  • green buildings which meet regional, national or internationally recognised standards or certifications.

All green projects should provide clear environmental benefits, which will be assessed, and where feasible, quantified, measured and reported upon by the borrower.

Four key elements which should feature in a GL

  1. Use of Proceeds
    The fundamental determinant of a GL is the utilisation of the loan proceeds for green projects, which should be appropriately described in the finance documents. 

    A GL may take the form of one or more tranches of a loan facility. In such cases, the green tranche must be clearly designated, with proceeds of that tranche credited to a separate account or tracked by the borrower in an appropriate manner.
     
  2. Process for Project Evaluation and Selection
    The borrower should clearly communicate to its lenders: (i) its environmental sustainability objectives, (ii) the method by which it is established that those objectives are a green project, (iii) the related eligibility criteria, including, if applicable, exclusion criteria or any other process applied to identify and manage potentially material environmental risks associated with the proposed projects, and (iv) any applicable green standards or certifications.

    Borrowers are encouraged to position this information within the context of their overarching objectives, strategy, policy and/or processes relating to environmental sustainability. 
     
  3. Management of Proceeds
    The proceeds of a GL should be credited to a dedicated account or otherwise tracked by the borrower in an appropriate manner, so as to maintain transparency and promote the integrity of the product.

    Borrowers are encouraged to establish an internal governance process through which they can track the allocation of funds towards green projects.
     
  4. Reporting
    Borrowers should make and keep readily available up to date information on the use of proceeds to be renewed annually until fully drawn, and as necessary thereafter in the event of material developments. This should include a list of the green projects to which the GL proceeds have been allocated and a brief description of the projects and the amounts allocated and their expected impact. Where confidentiality agreements, competitive considerations, or a large number of underlying projects limit the amount of detail that can be made available, the GLP recommend that information is presented in generic terms or on an aggregated project portfolio basis. Information need only be provided to those institutions participating in the GL.

How CMS can assist

At CMS we are committed to support clients implementing sustainable business practice and have extensive experience in assisting borrowers and lenders in documenting and advising on GLs.

 

*The above is a summary based on the LMA's guidance document on the Green Loan Principles. 

Authors

Etienne Courbois
Counsel
Amsterdam