Amending Rules April 2022 – Green Loans Series, Part 3 – Green Loan Principles in Real Estate Finance | Cadwalader, Wickersham & Taft LLP

In our March issue of REF news and viewswe have focused on the four core components to qualify as a Green Loan Principles (“GLP”) compliant green lending product. As a reminder, the GLP seeks to facilitate and support environmentally sustainable economic activity by providing a framework of market standards, policies and methodologies that can be uniformly adopted across the green lending market, with the four key components being:

  • Use of Proceeds
  • Procedures for project evaluation and selection
  • management of proceeds
  • reporting

Whilst the GLP is intended to support the broader expansion of the sustainable finance products market, it is also intended to be used in a real estate specific context and in October 2020 the LMA published two guidance documents (the “Guidelines”) specifically to address some of the more frequently asked questions regarding the application of the GLP in real estate financing.

What is considered a green real estate project?

There is no qualified market definition for the term “green projects”. It is therefore the responsibility of market participants to agree and clearly define the appropriate and applicable eligibility criteria for this green loan. The guide also recommends carefully documenting this in financial records; It could also help to defuse the accusation of “greenwashing”.

The guide provides useful details on retrofit projects that qualify as green projects. Ultimately, refurbishment projects should lead to a significant improvement in the energy efficiency of the subsidized building/building portfolio. It should also lead to a significant reduction in the CO2 emissions associated with that building/building portfolio.

Evaluation of the green real estate project

Most green loans used in real estate financing are for development and investment in green buildings. However, as with a ‘green project’, there has yet to be an accepted market standard definition and classification for a ‘green building’. The guidance therefore advises lenders to use external standards and certifications to measure the “greenness” of buildings, and lenders are advised to detail such principles in financing documents so that the parameters are clear.

The guidance also notes that lenders need to be aware that buildings that qualify as green at the start of a loan term may no longer be able to meet the requirements during the life of the loan. Therefore, it is advisable that lenders agree on the methods and parameters for assessing the eligibility criteria not only on day one, but throughout the life of the loan; such mechanisms may be addressed in the loan documentation. This also extends further to the principles mentioned above regarding the separation of green credit from non-green credit so that such green credit proceeds can be properly tracked along with their progress and application.


The guidelines relate to reporting and recommend that borrowers should aim to report at least annually on the use of proceeds and any significant developments. However, it recognizes that such reporting requirements may depend on the size and type of transaction, project and borrower.

Final thoughts on GLP

While GLP is ultimately voluntary, an increasing number of national and international corporate governance, climate change and sustainability policies and initiatives are being discussed, created and imposed that are beginning to transform the way companies and the financial markets operate and do business .

With increasing socio-economic pressures, we expect continued green credit growth and GLP development and evolution in the coming years.

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