Responding to sustainability and the risks and opportunities associated with climate change is already a priority for many social housing organizations and donors.

We are seeing increased interest in green loans and sustainability loans, but the term “green loan” is often used to cover both financial products.


A green loan is defined by the “Glossary of Green and Sustainable Lending Terms” of the Loan Market Association (LMA) as any type of loan instrument made available exclusively to finance or refinance, in whole or in part, loans. New and / or existing eligible “green”. projects’.

Although the definitions of ‘green’ and ‘green projects’ may vary by sector and geography, examples of indicative eligibility categories contained in the LMA’s Green Lending Principles (GLP) include renewable energy, ‘energy efficiency, adaptation to climate change and green buildings that meet standards or certifications recognized at regional, national or international level.

GLP provides a framework for green lending based on the following four fundamental components:

  • Product use: The loan proceeds from a green loan must be allocated to green projects. All designated green projects are expected to provide clear environmental benefits that will be assessed and, where possible, quantified, measured and reported.
  • Project evaluation and selection process: Borrowers should clearly communicate to lenders their environmental sustainability goals, their process for determining eligibility for BPL categories, and for managing the environmental risks associated with any proposed project.
  • Revenue management: The proceeds of a green loan should be tracked in order to maintain transparency and the allocation of funds to green projects.
  • Reports: Borrowers should provide and maintain up-to-date and easily accessible information on the use of funds, including a list of green projects to which green loan funds have been allocated.

An example of a green loan could include a registered supplier funding renewable energy projects related to their housing stock or rental.


A Sustainability Linked Loan (SLL) is defined by the LMA Glossary as any type of loan instrument and / or conditional facility (e.g., surety line, line of guarantee, letter of credit) that induces l borrower to achieve ambitious and predetermined sustainability performance goals.

A borrower’s sustainability performance is measured using Sustainability Performance Objectives (SPTs), which include key performance indicators, external ratings and / or equivalent metrics that measure improvements in the sustainability profile. of the borrower.

Again, while the definitions of “sustainable” and “sustainability” may vary by sector and geography, examples of common improvements that a SPT of a particular category might seek to measure are contained in the LMA sustainability lending principles. They include renewable energy, affordable housing, sustainable procurement and energy efficiency.

Addleshaw Goddard recently advised NatWest on its first SLL, which was with Bromford Housing Group.

The SPT in this case was energy efficiency and an ambitious target was agreed on an upgrade of the existing housing stock with an energy efficiency rating of C or less, exceeding the minimum energy efficiency standard required for buildings. leased residential properties (currently E). Bromford will get a margin reduction if he respects the SPT.

Addleshaw Goddard has advised lenders including BNP Paribas and Sumitomo Mitsui Banking Corporation on a number of other SLLs, including deals with L&Q, Peabody Trust, Bugle, Catalyst and PA Housing.

The LMA Sustainability Lending Principles provide a framework for SLLs based on the following four basic components:

  • Relationship with the borrower’s overall sustainability strategy: The borrower of an SLL must clearly communicate to its lenders its sustainability objective and how they align with the SPTs it offers.
  • Goal setting (measure of borrower sustainability): SPTs should be ambitious and meaningful to the borrower’s business over the life of the loan, and targets should be linked to loan terms to incentivize the borrower’s sustainability profile. One of the goals of an SLL is to encourage positive change through incentives and this should form the basis for setting goals.
  • Reports: Borrowers should provide and maintain up-to-date and easily accessible information about their SPTs and should provide it to lenders at least annually. Borrowers are encouraged to publicly report information about their SPTs.
  • Review: The need for an external review of SPTs should be agreed on a transaction-by-transaction basis. Where information relating to SPTs is not made public or accompanied by an audit / assurance statement, it is strongly recommended that a borrower seeks an external review of its performance against its SPTs.


The fundamental determinant of a green loan is the use of the loan proceeds for green projects, but the other essential components of the principles of green lending must also be observed.

The objective of the sustainability lending principles is to encourage the borrower’s efforts to improve its sustainability profile by aligning the loan terms with the borrower’s performance against the SPTs; product use is not a key determinant in categorizing an SLL.

This article was first published by Social housing.

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