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‘Green’ loan standards

The Loan Market Association – the body that sets standards for syndicated loans in Europe, the Middle East and Africa – published a set of voluntary guidelines to “promote integrity in the development of the green loan market by clarifying the instances in which a loan may be categorised as ‘green’”. It sets out four principles to assist the judging of whether or not a loan can be so categorised – use of proceeds; process for project evaluation; management of proceeds; and reporting. Under use of proceeds it says that “all designated Green Projects should provide clear environmental benefits, which will be assessed, and where feasible, quantified, measured and reported by the borrower.” Borrowers should clearly inform lenders what their environmental sustainability objectives are, among other matters. The proceeds of a green loan should be credited to a dedicated account, to maintain transparency and promote the integrity of the product. On the issue of reporting borrowers should “make and keep readily available up to date information on the use of the proceeds to be renewed annually until fully drawn”. The publication of these principles is seen as an important step towards promoting the wider use of green loans, the market for which has been slower to develop than that for green bonds.