What are Green Loans and what are they used for?

What are green loans?

The banking sector has an important role to play in combating climate change and promoting sustainable development.

Various instruments exist to support sustainable investments, such as green loans, which have already been contracted by a wide range of companies around the world. But what are green loans?

These are contingent loans or lines of credit (such as bonding lines, guarantee lines or letters of credit) whose ultimate purpose is to provide financial support (financing or guarantees), in whole or in part, to projects that have a positive impact on the environment.

Examples include projects that promote the conservation of natural resources, minimise climate change, promote the use of renewable energies or energy efficiency, all of which are eligible for this type of loan. However, it is important to underline that their concession depends on the financial institution, depending on the main objective of each project.

Features of green lending

• Use of funds: green loans finance projects with a positive impact on the environment, and this clarification must appear in the financial documents. This type of initiative covers areas such as renewable energy or pollution control.


• Project evaluation and selection process: green borrowers must communicate the environmental objectives of their projects and how they align with the available categories, including measures to identify and manage associated environmental and social risks. In addition, entities seeking a green loan must integrate their sustainability strategy, disclose their alignment with certifications, and establish processes to mitigate environmental and social risks by analysing and monitoring commitments.


• Management of funds: Revenues from green loans should be monitored in a transparent manner, with clear labelling and separate accounts for the green tranche(s), ensuring their integrity. Borrowers should disclose the intended temporary placement of unallocated revenues, managing them on a loan-by-loan or aggregated basis.


• Reporting: Borrowers are encouraged to maintain up-to-date records of the use of funds, disclosing annually those that have been allocated, project descriptions and expected impacts, emphasising transparency in reporting the results of initiatives through qualitative and quantitative performance indicators, and disclosing.

Green loans are therefore an essential part of the instruments available to financial institutions to contribute to the fight against climate change.

Last year, green loans accounted for €218 billion, compared to €193 billion in 2022. The trend is growing, and it is only a matter of time before they become the main contributor to a more sustainable future.

Types of green loans

• Bilateral green loans: A loan between two parties: the borrower and a single lender (usually a bank). It is ideal for smaller projects and has terms negotiated directly between the two parties.


• Syndicated green loans: A loan where several lenders come together to finance a large or high-risk project. Used for large-scale projects, such as green infrastructure.


• Revolving line of credit: A flexible line of credit that allows a specified amount of money to be accessed and reused as it is repaid. It is adapted to ongoing needs, such as small sustainable investments.


• Green project finance: These are loans or funds specifically designed to finance sustainable projects, such as renewable energy or energy efficiency, in order to promote environmental stewardship.

Advantages of green loans

Green loans offer a series of both economic and environmental benefits, designed to encourage sustainable projects. By opting for this option, both companies and individuals can access more favorable financial conditions and contribute to the care of the environment. Among the main advantages of green loans stand out:

• Better financial conditions


• Access to tax incentives


• Improved image


• Positive environmental impact


• Reduced operating costs

What are the requirements to apply for a green loan?

For individuals:

• Installing solar panels: Finance the purchase and installation of solar systems to reduce energy consumption and carbon emissions. 


• Buying an electric car: Purchase an electric or hybrid vehicle to reduce personal carbon footprint. 


• Home energy renovation: Improve home energy efficiency, such as thermal insulation or installation of energy-efficient windows.

• Renewable energy installation: Financing the installation of solar panels or wind systems to cover the company's energy needs.


• Construction of sustainable buildings: Financing for the construction of buildings with energy efficiency standards. 


• Recycling or waste management projects: Implementation of recycling and waste treatment systems within the company to reduce environmental impact.

How do they differ from green bonds?