Green Loan

A cold-storage operator wants new efficient chillers, and a lender may structure financing for that equipment as a green loan if the project meets documented eligibility and proceeds can be tracked. The operator still needs an ordinary credit assessment and a viable repayment plan.

The Loan Market Association's 2025 Green Loan Principles include four core components: use of proceeds, project evaluation and selection, management of proceeds, and reporting. The guidance recognises refinancing and different loan forms, not just new term loans, and it is a voluntary market framework rather than a universal statutory tax benefit.

Eligible projects such as renewable power, efficient buildings and clean transport must each meet relevant criteria, because "green" in a supplier brochure is not enough. The borrower should state the environmental outcome the project aims to achieve and how it fits broader plans, and should document who evaluates eligibility and what standards or evidence are used, which reduces arbitrary relabelling after money is spent.

A dedicated account or suitable internal tracking can show that the amount financed matches eligible expenditure, and some supporting expenditure may qualify under the framework while ordinary unrelated operating costs do not automatically do so. A green loan can refinance an existing eligible project under defined look-back periods, so avoid double counting, and a revolving credit line needs controls suited to repeated draws and allocations.

The agreement should also say how undrawn or unallocated amounts are managed before eligible uses occur, and if eligible equipment is replaced with another project, the allocation should be re-evaluated before it is treated as compliant. The borrower should report current allocation of proceeds with the frequency and detail required by the agreement, and should report impact carefully by estimating energy saved or emissions avoided with a documented baseline and assumptions.

A new chiller's savings depend on weather, operating hours and the old baseline, so avoid claiming that all lower electricity use came from the equipment. Finance tracks money while operations measures project outcomes, so both teams need compatible records and a named data owner.

An external review can assess alignment, although the principles do not make every review mandatory in all cases, and a building certificate can support eligibility only if the exact standard, version and status are checked. Invoices, allocation schedules and measurement methods should remain auditable over the financing life, and the same eligible spending should not be claimed twice against different green loans without a valid method.

Marketing a loan or project as green can also trigger jurisdiction-specific disclosure or consumer rules, so use the actual agreement and applicable regulation. A qualifying environmental project can still run over budget or underperform financially, and environmental reporting does not replace debt service, covenants or security obligations.

A green label may or may not change interest, fees or covenants, and tracking and review may add administrative expense, so request actual offers and include that cost when comparing finance options. Sustainability-linked loans generally tie financing terms to borrower-level performance targets and need not ring-fence proceeds for green projects, and for owners a green loan connects dedicated capital to a defined project whose value depends on project quality and clear financing terms, not the label alone.