LMA publishes updated Green Loan PrinciplesFriday, 12 February 2021
Sustainable Finance incorporates climate, green and social finance, while taking into consideration the longer-term economic sustainability of organisations that are being funded, as well as the role and stability of the overall financial system in which they operate.1
While climate change and environmental risks have habitually overshadowed other areas in this regard, the Covid-19 pandemic and recent EU legislative measures have increasingly diverted focus towards social risks, with companies having to reconsider their approach and contemplate their social and governance priorities.
One form of Sustainable Finance are Green Loans which direct capital into environmentally sustainable economic activities by financing or re-financing, new or existing eligible green projects. These loans are becoming increasingly common in the loan market, with most loans aligned with the Green Loan Principles2 (GLPs) published by the Loan Market Association, Loan Syndications and Trading Association and the Asia Pacific Loan Market Association.
The GLPs and the related Guidance on Green Loan Principles3 have now been updated to include social risks to the categories to be considered as part of a potential green project’s evaluation and selection (one of the four components of the GLPs).
Borrowers of Green Loans should consider not only any environmental risks, but also any social risks associated with a proposed green project. They should ensure their processes seek to mitigate adverse environmental and social impacts associated with the proposed projects and advise their finance providers of their analysis, mitigation measures enacted and the proposed monitoring to be undertaken where any such potential risks are identified as meaningful.
For further information, please contact Paraic O’Kennedy or Karen Outram from the Banking and Finance team or a member of the Energy and Natural Resources team.