Green loans have a valuable role to play when it comes to reining in the impact of climate change as they aim to provide opportunities for companies that have sustainability embedded in their business models.
The HSBC initiative adheres to the Loan Market Association's Green Loan Principles, which developed a framework to ensure transparency and integrity in financing green initiatives.
Their aim is to create a high-level framework of market standards and guidelines, providing a consistent methodology for use across the green loan market, whilst allowing the loan product to retain its flexibility, and preserving the integrity of the green loan market while it develops, according to the Loan Markets Association. (PDF,2.3MB).9
Green loans are suitable for projects such as renewable energy, green buildings, sustainable water management and sustainable agriculture, biodiversity conservation and clean transportation, among others.
However, the loan recipient must adhere to a transparent process that tracks the loan, provide periodic reports to lenders and clearly communicate its environmental sustainability objectives.
These principles are vital as institutional investors seek transparent processes to ensure that funds are being deployed for sustainable causes.
The advantages of burnishing their green credentials is going to be vital for companies as they seek funding through various stages of growth. Investors who are conscious about environment, sustainable and governance (ESG) will be drawn to such companies.
Apart from restoring the environment and playing a role in a healthy planet, sustainable investing also offers trillions of dollars worth of opportunities. The International Finance Corporation10 says emerging markets can open up US$ 23 trillion in opportunities for climate-smart investments if they choose to meet their Nationally Determined Commitment as part of their Paris Climate agreement.