Green Loans For A Triple Win - People | Planet | Profits

A green loan is a type of financing that is used for environmentally friendly projects that focuses on a variety of goals, such as reducing greenhouse gas emissions, conserving energy, and improving resource efficiency. These are similar to traditional loans in many ways, but they have some key differences. They are subject to stricter environmental criteria which means that the borrower must use the loan proceeds for a project that meets specific eligibility requirements. These kinds of loans have a lower interest rate than the traditional ones because lenders are willing to offer a discount to borrowers who are investing in environmentally beneficial projects. There are a number of benefits to using these green loans like reducing the environmental impact of businesses and organizations and can help to save money on energy and other resources also improving the goodwill of an organization.

The Green Loan Principles (GLP) are a voluntary framework that is aimed at promoting transparency and integrity in the green loan market. It was developed in 2018 by a group of leading financial institutions, that provide guidance on the following key aspects.

• Use of Proceeds - The loan proceeds must be exclusively used for projects that deliver clear environmental benefits, aligned with categories like renewable energy, pollution prevention, and sustainable resource management. The Project selection and eligibility criteria should be clearly defined and available for review.
• Process for Project Evaluation and Selection - Borrowers should establish a robust internal process for evaluating and selecting green projects, considering environmental impact and alignment with GLP categories. The External review or verification by independent specialists is encouraged, though not mandatory, to increase transparency and confidence.
• Reporting - Borrowers are required to regularly report on the use of loan proceeds and the environmental impact of funded projects. This information should be publicly available, usually within the annual report or a dedicated website.
• Transparency and Integrity - Marketing materials and loan documentation should clearly and accurately reflect the green credentials of the loan and associated projects. Misrepresentation or greenwashing is strictly discouraged, and borrowers are responsible for maintaining the integrity of the market.

The GLP were updated in March 2023 to clarify guidance on refinancing existing projects, temporary placement of unallocated funds, and internal expertise for self-certification. Overall, the GLP seek to ensure that green loans truly contribute to environmental sustainability and provide lenders and investors with confidence in the integrity of the market.

Some of the key trends that are expected to shape the green loan market in India in 2024 include the following. Green bonds are debt instruments that are issued to finance environmentally friendly projects. The Indian green bond market is still in its early stages, but it is expected to grow rapidly in the coming years. Banks and other financial institutions are starting to factor climate risk into their lending decisions. This is likely to lead to a greater demand for green loans, as businesses and individuals look to mitigate their exposure to climate change. New technologies, such as blockchain and artificial intelligence, are making it easier to track and verify the environmental impact of investments. This is likely to make green loans more attractive to investors. The green loan market in India has the potential to play a major role in the country's transition to a more sustainable economy. By providing financing for green businesses and projects, green loans can help to reduce India's carbon footprint and create new jobs.

The green loan market in India is expected to boom in 2024, driven by a number of factors. The Indian government has set ambitious targets for renewable energy generation and climate change mitigation and is providing a number of incentives for green businesses and projects. For example, the Union Budget 2023-24 allocated Rs 35,000 crore for priority capital investments towards energy transition and net zero objectives. Indian consumers are becoming increasingly aware of the environmental impact of their choices and are demanding more sustainable products and services. This is creating a market for green loans, which can be used to finance energy-efficient homes, electric vehicles, and other green technologies. Banks and other financial institutions are launching a variety of green loan products, such as green mortgages, green auto loans, and green business loans. This is making it easier for businesses and individuals to access the financing they need to invest in green projects.

Let's explore some of the prominent green loan providers in India in 2024, along with their key statistics.

• State Bank of India (SBI) - It is India's largest bank, spearheading green initiatives. It launched the dedicated green banking vertical in 2019 offering a wide range of green loans, including renewable energy project loans, energy-efficient building loans, and electric vehicle loans. It has committed to financing 1 trillion USD in green projects by 2027.
• Yes Bank - It is a pioneer in green financing in India, with a focus on renewable energy and climate change mitigation. It offers innovative green loan products like rooftop solar loans and EV charging station loans. It has partnered with international organizations like IFC and GIZ to scale up green financing. It has a green asset over 20% of Yes Bank's loan book.
• Axis Bank - It is actively involved in financing renewable energy projects, energy-efficient buildings, and sustainable infrastructure. It launched India's first green credit card in 2019. The bank is committed to mobilizing 10 billion USD in green finance by 2025. The green loans account for roughly 5% of Axis Bank's loan book.
• IDBI Bank - It is dedicated to promoting clean energy and environmental sustainability. It offers a comprehensive suite of green loan products, including solar power plant loans, LED lighting loans, and green SME loans. It partnered with government agencies like MNRE and IREDA to facilitate green financing. The green loans comprise approximately 3% of IDBI Bank's loan portfolio.
• HDFC Bank - It is a leading private sector bank, playing a significant role in financing green projects. It offers green loans for renewable energy, energy efficiency, and sustainable agriculture. The bank collaborates with NGOs and impact investors to promote green finance initiatives. The green loans represent around 2% of HDFC Bank's loan book.

The Indian green loan market is expected to reach $150 billion by 2025. Green bonds issuance in India is expected to touch $10 billion in 2024. Renewable energy is the largest segment of the Indian green loan market, accounting for over 50% of green loans. As India strives towards a greener future, green loans are playing a crucial role in financing the transition to a sustainable economy. By supporting renewable energy, energy efficiency, and other green initiatives, green loans are helping to create a cleaner and more prosperous India for all.

Here are some examples of companies offering green loans.

• Bank of America has committed $1 trillion through 2030 to advancing goals like renewable energy; sustainable transportation, water and agriculture; and improved forestry management.
• Citi has also made a $1 trillion commitment to sustainable finance.
• HSBC offers a variety of green loans for businesses, including project finance, working capital loans, and trade finance.
• Aspiration is a challenger US bank that funds money in green projects intended to save the environment and avoids oil corporations that destroy the climate.
• Starling Bank is a branchless, paperless bank operating on renewable energy and offers green personal loans and mortgages.
• Charles Schwab and Co. provides guidance to its clients on getting started with ESG investing, which includes green bonds and loans.
• Prologis is a large-scale real estate developer, uses green bonds to raise money for green buildings.