Benefits of a "Green" Loan

Derwent London, the largest London-focused REIT, has just signed a five year £450 million revolving credit facility from HSBC UK, Barclays and Natwest including a "green" tranche of £300 million. 

The facility is an example  of a "green" loan in the market. Such loans represent a way that the Real Estate industry can do its part for the environment i.e. by providing funding for development and refurbishment of buildings which deliver first class working, amenity and outdoor spaces, improved energy efficiency and reduced consumption of natural resources.

From a developer's perspective, typical "green" loans may provide financial benefits as some (but not all) of lenders on the market will offer a margin discount if developers deliver against their "green"  goals e.g. securing an A-rated EPC or a BREEAM "very good" or "excellent" rating. They are a practical way for businesses to demonstrate a commitment to environmentally responsible behaviour as regulatory bodies, investors, shareholders and end consumers are all increasingly holding businesses to account in this area.

"Green" loans also offer lenders a way to potentially gain a better insight into their customers' credit worthiness through a closer examination of their underlying assets. They are good for a lender's "green" credentials as they offer the lender exposure to potential new borrowers as the lenders are seen as supportive of "green" lending initiatives. 

Their benefits to end-consumers are obvious as they will be living in homes and working in offices that are cheaper to run and environmentally friendly. End consumer buy in to "green" developments could also lead to an increase in value of the properties themselves.

There are clearly a number of advantages of "green" loans. It will be interesting to see how this area grows as our developer clients seek access to capital and our lender clients seek returns on their investment which back up their "green" targets.