Sustainability-linked loans

Sustainability-linked loans have grown in popularity among both lenders and borrowers in the real estate and infrastructure sectors over the past few years as a mechanism for responsible financing.

With them, borrowers can incentivize their sustainability performance, increase access to capital, and reduce costs while lenders can better manage risk and demonstrate sustainability-related commitments to regulators and investors. And they help both parties enhance their reputations and achieve long-term sustainability goals.

GRESB is increasingly becoming a cornerstone of these loans, with scores and benchmark standings being used both to set and manage Sustainability Performance Targets and to support reporting and verification of the loan.

This is because GRESB is:

• An objective, widely recognized industry standard for measuring sustainability
• Transparent and accountable, with clear standards and methodology
• A diverse benchmark, making it possible to incorporate performance against relevant peers
• Sub-sector specific, allowing loan conditions to be based on relevant parameters
• An evolving standard that allows targets to be set based on continuous improvements

How GRESB is used in sustainability-linked loans

Typically, a firm looking to decarbonize its operations or achieve other significant sustainability goals will work with a lender to outline a framework that uses the GRESB Scores and Ratings, a specific score, or some other verifiable performance indicator found in the GRESB Scorecard.

Take, for example, Hang Lung Properties – a leading real estate developer in China that has set ambitious GHG reduction targets for 2023. To help achieve a 70% reduction compared to its 2018 baseline, Hang Lung has embraced sustainability in its financing.

In 2021, the firm signed a sustainability-linked loan for HKD 1 billion over three years with BNP Paribas for general corporate use, which features a number of predetermined sustainability performance targets that, if met, will reduce funding costs over the life of the loan.

The company’s GRESB results play a central role in this agreement, with loan terms being based on maintaining the firm’s GRESB rating as well as achieving annual reductions in energy intensities across key parts of its portfolio – information that is tracked and validated through the GRESB Assessment.

To help reach its goals, Hang Lung directs loan capital to projects such as installing solar systems on its properties, increasing the efficiency of its HVAC systems, and retrofitting aging buildings. Read more about the loan and Hang Lung’s work.

See more examples of GRESB scores in sustainability-linked loans