Interesting from Environmental Finance:

The combined total of all green and sustainability-linked loans issued to date has reached about $111.5 billion, according to figures compiled by Environmental Finance.

The analysis reveals a market that exploded into action last year, and which seems set to grow with increased momentum again this year.

There has already been a combined $36.3 billion in such deals so far this year. This compares with $25.2 billion in transactions in the first six months of last year.

2018 saw overall issuance of $65.25 billion. This was a marked rise on 2017, with a combined $9.54 billion, and 2016, which saw just $154 million of these deals.

The largest single transaction is believed to be Spanish utility Iberdrola’s €5.3 billion ($6 billion) green loan, which it agreed in January 2018.

Separate figures from Environmental Finance’s bond database reveal that the green, social and sustainability bond market has grown to more than $750 billion. When combined, these figures suggest a green and sustainable debt market worth about $860 billion.

Green loans tend to link the use of funds to dedicated green projects. Sustainability-linked loans tend to link their rate of interest to the borrower’s performance on environmental or broader sustainability criteria, in an effort to incentivise the borrower to improve.

Fresh impetus came with the launch in March of the Sustainability-Linked Loan Principles (SLLPs) – which followed the publication of the Green Loan Principles (GLPs) by almost exactly one year.

The SLLPs widened the categories of loans which can be considered sustainable to Revolving Credit Facilities (RCFs), proceeds from which can be used for general corporate purposes. This was not previously possible under the GLPs, which – in contrast to the SLLPs – require tracking of proceeds into specific green projects.

At the time, senior industry figures suggested this had the potential to open up significant demand for the instruments from previously untapped markets.

A €200 million ‘sustainability Schuldschein’ issued this week by German engineering firm Dürr suggests that elements of the green loan market could spill over to the green bond market.

Schuldscheins, which originate from Germany, share certain aspects of loans and bonds.

The Dürr deal includes a sustainability-linked aspect which will see the margin on the Schuldschein reduced by up to two basis points if the issuer meets certain sustainability targets, according to reports.

It is believed that this feature was only previously seen in the green and sustainability-linked loan market.

Last month, law firm White & Case suggested greater supply of sustainability-linked loans could also provide the ideal collateral to be aggregated into sustainable Collateralised Loan Obligations (SCLOs).

In this way, the Principles “have unlocked a powerful new tool” to connect the bond market to sustainable debt around the world – via SCLOs – while simultaneously providing the banks with additional capital for sustainable projects, White & Case claimed.

Michael Hurley

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