Green lending is growing as a means to fund sustainable projects
22 April 2022
Brian Haugh, Head of BDO Valuation & Financial Modelling Centre featured in The Irish Times Special Report on Green Finance.
Under The World Bank Group’s International Finance Corporation (IFC) terms, green lending is defined as a form of financing that enables borrowers to use the proceeds to exclusively fund projects that make a substantial contribution to an environmental objective.
Brian points to BDO’s focus on assisting clients in obtaining green finance. “We advise them through the borrowing process where we see increasingly that lending institutions and funds are dedicating pools of funding specifically to provide finance to environmentally sustainable projects. In order to get these loans, borrowers must demonstrate the sustainability bona fides of their project as well as meeting traditional borrowing metrics such as debt service cover.”
The upsides to green lending is the cost to borrower. As he explains: “In many cases green finance does come with preferential rates. Many banks take their role in our global net zero ambitions seriously and want to support projects that are aligned with this ambition, however, beyond that, ‘green’ projects are often seen as lower risk because the cost savings in energy reductions and carbon tax are somewhat easier to predict than the cash flows of say launching a new product line.
“Another critical factor is the bank’s ability to obtain its own funding for these green lending products at lower rates through the issuance of ‘green bonds’ and through access to European Investment Bank funding for sustainability projects. If they can borrow at a lower rate, they can on-lend to customers at a preferential rate.”
Content adapted from The Irish Times.