Page 36 - Banking Finance April 2021

ARTICLE

The World Is Going Green said guidelines, banks in China were mandated to
promote green credit as a part of their strategy and
With increased awareness in relation to environmental
business policy. Under these guidelines, the combined
protection, banks have now introduced green finance
green credit loan portfolio of China Development Bank
products within their existing product portfolios. These
and Industrial and Commercial Bank of China in 2011
include green home loans, green construction loans, green
was approximately USD 200 billion.
car loans, green project loans, green securitization products,
etc.
However, the first global industry-wide practice framework
was introduced in 2018 jointly by the Asia Pacific Loan
Additionally, financial intermediaries, government and
Market Association, the Loan Market Association and the
central banks of various countries are also playing a pivotal
Loan Syndications & Trading Association, in form of "Green
role in promoting green loans by introducing incentive
Loan Principles".
schemes or mandatory regulations. Some such schemes that
have been introduced globally are as follows:
X In April 2019, Doconomy, a Swedish fintech startup had The Green Loan Principles: The First Step
launched a credit card wherein the credit limit was Towards a Consolidated Framework
based on the amount spent but instead, on the
The Green Loan Principles (GLP) were introduced to
aggregate of carbon footprint associated with the
promote the green loan market. The GLP, inter alia provides
purchases made using the card.
a non-exhaustive category of projects that can be classified
X In 2018, the Government of Malaysia launched the as "Green Projects". Further, the GLP lays down 4 important
"Green Technology Financing Scheme 2.0" for components of Green Loans:
encouraging the financing towards production of green 1) Use of Proceeds: Proceeds of a "Green Loan" shall be
products. The scheme offers green projects with a 2% utilized towards Green Projects. This, along with the
per annum subsidy on interest rate for the first 7 years environmental benefits of the Green Projects shall be
and 60% government guarantee on green component documented.
cost. As of today, around 52 banks in Malaysia are
2) Process for Project Evaluation and Selection: The
participating under this scheme.
borrowers shall disclose all relevant information (such
X In April 2014, the Bangladesh Bank had directed all as the objectives, strategies and/or environmental risks
banks and financial institutions to disburse a minimum
associated) as regards the environmental sustainability
of 5% of the total loan disbursal towards direct Green of the project to the lenders.
Finance.
3) Management of Proceeds: The loan proceeds of the
X In 2007, the China Banking Regulatory Commission had
issued mandatory "Green Credit Guidelines". Under the Green Loan shall be credited to a dedicated account
which can be easily tracked by the lender. Further, the
borrowers shall put in place a mechanism to track the
proceeds utilized towards the Green Project.

4) Reporting: The borrowers shall maintain relevant
information for the Green Project, which shall be shared
with all the lenders on an ongoing basis. If required, the
borrower shall seek advice from external consultants
and obtain certifications from rating agencies.

The GLP also advises for certain covenants, representations
and penalties (in cases of default and "Greenwashing", i.e.
false or misleading claims of the project being a Green
Project) to be provided in the Green Loan documentation.

36 | 2021 | APRIL | BANKING FINANCE