What is a green loan?
A green loan is a term loan, revolving credit facility, guarantee line, or other loan instrument whose proceeds, or an equivalent amount, finance, refinance, or guarantee eligible projects with clear environmental benefits. The label applies to the financing or qualifying tranche, not automatically to the borrower's whole business.
The March 2025 Green Loan Principles (GLP) are voluntary market guidance applied by borrowers and lenders deal by deal. They require four components: use of proceeds, project evaluation and selection, management of proceeds, and reporting. Keslio's sustainable financing guide places this use-of-proceeds structure beside green bonds and performance-linked finance.
Why does a green loan matter to you?
Before signing, a lender may ask for the project's environmental objective, eligibility criteria, approval record, expected benefit, and controls for environmental and social risks. The finance documents should name the eligible uses. If existing assets will be refinanced, record the financing-versus-refinancing share, the assets concerned, and the agreed lookback period, meaning how many prior years of project spending can qualify.
After drawdown, finance and operations must reconcile each allocation to the proceeds register, project approval, and a supporting record such as an invoice, asset register, or general-ledger entry. The GLP call for updated information at least annually until full allocation, or until maturity for a revolving credit facility. The report lists projects, descriptions, allocated amounts, and expected and, where feasible, achieved impact.
How does a green loan work?
- Define eligible project categories and measurable environmental benefits in the loan documents or green loan framework.
- Record who evaluates and approves each project, the criteria used, and how material environmental and social risks are managed.
- Credit the proceeds to a dedicated account or track an equivalent amount through a formal internal process. Tell lenders how any unallocated balance is held.
- Report allocations and impact at least annually, with the method and assumptions behind quantitative indicators such as installed capacity or energy saved.
Tracking may be loan by loan or across a portfolio of green loans. If a facility contains green and non-green tranches, only the qualifying tranches may carry the green label, and their proceeds must be separately tracked.
What mistakes should you avoid?
- Calling a general-purpose facility green because the borrower has an environmental strategy.
- Using two outstanding labelled financings against the same asset at the same time.
- Treating an unallocated balance as though it has already funded an eligible project.
- Reporting an impact figure without its calculation method, assumptions, reporting period, and source records.
Is a green loan the same as a sustainability-linked loan?
No. A green loan restricts proceeds to eligible green projects. A sustainability-linked loan may fund general business purposes, but its financial or structural terms change according to performance against agreed key performance indicators and sustainability performance targets.
What do you send when a lender asks about a green loan?
Send the framework or relevant loan clauses, eligibility and exclusion criteria, project approval records, proceeds register, invoices, unallocated-balance record, allocation report, and impact workpapers. For refinancing, add the asset age, remaining useful life, prior financing maturity, refinanced amount, and lookback period.
Does a green loan need an external review?
Not in every transaction. The GLP say borrowers should appoint a reviewer where appropriate, particularly when they cannot demonstrate enough internal expertise. A borrower with documented expertise may self-certify if the lenders accept that approach in the loan documents.