Many property industry players have financed billions in projects through green finance in recent years. Major banks have offered green loan products to fund energy efficient commercial properties. As of June 2022, approximately AUD10 billion (around about 3%) of Australian commercial property debt was green loans. Commercial property investors may therefore refinance existing debt with green finance for lower pricing while upgrading the property to make it green or energy efficient.
For companies that are considering acquiring green buildings or upgrading existing buildings, green loan would be a better option, considering its significant cost advantages and the positive public images brought to the company.
Green Projects in Commercial Property Market
Green loans are any type of debt financing instruments made available exclusively to finance, or re-finance, eligible green projects. Typical green projects in the commercial property market include:
- green buildings which meet regional, national or internationally recognised standards or certifications, such as Green Start Rating certified by the Green Building Council of Australia;
- renewable energy production, storage systems, transmission, appliances and products, such as installation of solar panels;
- energy efficient district heating, smart grids, appliances and products in new and refurnished buildings;
- pollution prevention and control, including reduction of air emissions and water pollution, greenhouse gas control, waste prevention and reduction, waste collection, recycling and energy/emission-efficient waste to energy;
- terrestrial and aquatic biodiversity restoration, conservation and enhancement, such as urban ecosystems;
- clean transportation, including infrastructure for clean energy vehicles;
- sustainable water and wastewater management, including sustainable infrastructure for clean or drinking water, wastewater treatment, and smart irrigation; and
- circular economy adapted products, production technologies, processes and business models, such as the design, production and introduction of reusable, recyclable and refurbished materials, components and products, circular business models, tools, services and practices and certified eco-efficient products.
Green Loan Framework
Financiers usually require borrowers to provide a green loan framework demonstrating how the proposed loan will satisfy with the four core components under the Green Loan Principles (GLP), being:
- Use of Proceeds
The net proceeds of green loan or an amount equal to these net proceeds must be used exclusively for green projects, including expenditures in support of green projects such as training, monitoring, research and development and finance costs. - Process for Project Evaluation and Selection
Borrowers should disclose its environmental sustainability objectives, the process of determining that the projects are green, and the process to identify and manage ESG risks. Borrowers are also encouraged to have a process to identify mitigants to material risks of negative social or environmental impacts. - Management of Proceeds
The proceeds of green loan should be credited to a dedicated account, or otherwise tracked in an appropriate manner, and attested to through a formal internal process linked to the lending and investment operations of the green project. - Reporting
Borrowers should report on the use of green loan proceeds in accordance with the finance documents.
Green Loan Process
| Stage | Key Activities |
| 1. Structure Green Loan |
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| 2. Negotiate Terms |
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| 3. Enter into Green Loan |
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| 4. Use of Proceeds |
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| 5. Reporting |
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Review Methods
| Review Type | Description |
| Second Party Opinion | Provided by an SPO provider |
| Verification | Assurance by auditors or ESG rating providers, external attestation, certification by certifiers |
| Rating | Given by a specialist research provider or rating agency |
| Self-Certification | By a borrower with internal expertise to confirm alignment with Green Loan Principles (GLP); may be sufficient in some cases |
