Sustainable Finance: Greening the products in the game

By Business & Finance
12 April 2022
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The changing environmental, social and  economic landscape presents global challenges for people and planet. The financial sector response to address these challenges is now starting to take shape, one part of the response being the emergence of  identifiable sustainable or “green” financial products and services.

Note: This piece was originally published in Business & Finance magazine, vol. 59, no. 1, available to read, with compliments, here.

Sustainable finance policy interventions at macro policymaker level – like the EU climate benchmarks, EU Taxonomy and EU green bond standard – are strong and necessary drivers of the sustainable finance agenda. Collaborative industry initiatives – like the ICMA green bond or sustainability-linked  loan principles – provide significant support. 

The financial sector and sustainability

The financial sector is uniquely placed to influence and drive change towards designing  financial products that incorporate sustainability  risks and factors. One reason for this is that a  primary function of the financial system is to power the real economy. So, if sustainability challenges matter to businesses and activities in the real economy, then they matter to the  financial sector because it lends to, invests in or  insures those businesses and activities.  

Another reason is linked to the ambitious targets set to achieve the goals of the Paris Climate Agreement and the UN Sustainable Development Goals. Achieving these goals will require significant financing and the public sector cannot do this alone. Private finance, including the financial service sector, has a part to play.

How? A green loan case study

A core part of building a sustainable economy that is competitive in the long-term, is transition to a low-carbon, more sustainable, resource efficient and circular economy. Taking the case in point of credit institutions in Europe, with  two thirds of the European economy financed by banks according to the European Banking Federation, this transition simply cannot happen without them.  

So a critical dimension in furthering the sustainable finance agenda is how the actors  in the financial sector, particularly banks but also institutional investors, insurers and asset managers, scale up their green product and service offerings. This can facilitate businesses in the real economy to deliver on their  sustainability goals. 

During the FS Leaders Future Finance Summit 2021, a panel of speakers from IPUT, Wells Fargo  and A&L Goodbody gave practical insights into their respective roles structuring a green loan facility based on the green loan principles  developed by the European Loan Market Association (LMA). In 2020, IPUT increased  an existing revolving credit facility with Wells Fargo. €200m of the increase was to finance commercial real estate construction projects meeting a defined set of sustainability criteria under a proprietary green finance framework based on the LMA green loan principles. 

This is a fine case study in putting sustainable finance into practice, demonstrating the drivers  for both the borrower and the lender, illustrating issues to be tackled on all sides in constructing the deal and culminating in one of the largest green facilities in the Irish real estate market.

Building Scale

“Greening the rules of the game”, as UNEP FI puts it, is well underway as part of the sustainable finance agenda. An important next step is for financial institutions to seize the opportunities, implement the rules, use standards and scale up greening the products in the game.