Financing Green and Sustainability-Linked Loans

Description

The use of green loans, SLLs, and sustainable bonds to finance renewable energy is rising. However, each has its own set of standards, use of proceeds and/or target setting requirements, and necessary regulatory obstacles for counsel to properly advise renewable energy and corporate clients.

A green loan is any loan instrument made available exclusively to finance new or existing eligible green projects. The term "green project" includes renewable energy, energy efficiency, pollution prevention and control, and clean transportation projects. Essentially, the core determinant for qualifying as a green project is that the financed project must provide clear environmental benefits. Green loans must align with applicable standards for the use of proceeds, project evaluation and selection, reporting, and annual disclosures.

An SLL is any loan instrument or contingent facility that incentivizes a borrower's achievement of designated sustainability performance objectives measured using applicable sustainability performance targets. Sustainability performance is measured against targets including key performance indicators (KPIs) and ratings that measure improvements in the borrower's sustainability profile. This deviates from the use of proceeds model implemented across green loans and requires target setting, reporting, and annual review.

Sustainable bonds, which include green, sustainability, and sustainability-linked bonds (SLBs), are also available to finance renewable energy projects. Green bonds, like green loans, may be used to finance green projects. Sustainability bonds are more broadly available to finance a combination of green and social projects. In contrast, the proceeds of SLBs may be used for general corporate purposes, whereby the financial or structural characteristics vary depending on whether the issuer achieves predefined sustainability objectives.

Listen as our panel discusses key components of financing renewable energy with green loans, SLLs, and sustainable bonds, as well as best practices for counsel, investors, and developers.