What are Green Loans?
A green loan is any type of loan instrument made available exclusively to finance or refinance, in whole or in part, new and/or existing eligible green projects. The market is governed by the Green Loan Principles (GLP) first issued by the Loan Market Association (LMA), Loan Syndications and Trading Association (LSTA), and Asia Pacific Loan Market Association (APLMA) in 2018, most recently updated in 2023. The GLP are voluntary high-level principles ensuring transparency and integrity in the green loan market.
Four core components
- Use of Proceeds: proceeds must be applied to green projects (renewable energy, energy efficiency, pollution prevention, clean transport, green buildings, climate change adaptation, circular economy, etc.).
- Process for Project Evaluation and Selection: borrower clearly communicates sustainability objectives and the process to determine eligibility.
- Management of Proceeds: tracked through a dedicated account or otherwise; balance of unallocated proceeds appropriately invested.
- Reporting: annual reporting on use of proceeds, including allocation amounts and (where feasible) expected/actual impact.
Green Loan vs. Sustainability-Linked Loan
- Green Loan: use-of-proceeds; eligible green projects; pricing typically slightly below conventional.
- Sustainability-Linked Loan (SLL): general corporate purposes; pricing linked to sustainability performance targets (SPTs); no use-of-proceeds restriction.
External review
Borrowers may obtain external reviews — Second Party Opinion (SPO), verification, certification, scoring — particularly for syndicated or capital markets-adjacent transactions. EU Taxonomy alignment is increasingly an explicit eligibility filter for EU lenders.
Green loans, documented
The Green Loan Principles trade on a simple bargain: cheaper or reputationally valuable money in exchange for verifiable use of proceeds. The four components — eligible green projects, selection process, tracked proceeds, reporting — translate into loan mechanics: a use-of-proceeds clause with the eligible categories annexed, separate accounting or tagging of drawdowns, information covenants matching the agreed reporting, and external-review obligations where required. The legal risk is label risk: green-default clauses (mislabelled or diverted proceeds) and the growing scrutiny of sustainability claims mean the borrower’s public statements must track the loan file. Turkish borrowers see the framework via international lenders and TSKB-style facilities; aligning loan reporting with TSRS sustainability disclosures avoids running parallel data regimes.