The Irish loan market is exposed to ECB interest rate hikes. Green Loans and Sustainability Linked Loans are offering an alternative to general corporate borrowing on the Irish Loan Market, while also assisting borrowers in achieving their ESG objectives.
Ireland has seen high levels of lending activity across all industries over the last twelve months, despite several challenges which continually apply pressure upon the Irish economy. These challenges include the crisis in Ukraine, Brexit, and global supply chain shortages. A worrying trend emerged in the latter half of 2022 however, threatening the buoyancy of the Irish loan market. European Central Bank directed interest rates hikes aimed at regulating spiralling inflation are trending upwards with no sign of slowing in the near future, which is likely to deter businesses from general corporate lending. Green Loans and Sustainability Linked Loans (“GLSLLs”) can offer an attractive solution to businesses seeking to raise finance at lower interest rates than traditional corporate financing.
GREEN LOANS AND SUSTAINABILITY LINKED LOANS
The Loan Market Association (the “LMA”), the authoritative voice of the syndicated loan market in Europe, Middle East and Africa ("EMEA"), published “Green Loan Principles” and “Sustainability-Linked Loan Principles” which outline the characteristics of these socially conscious lending options.
GREEN LOANS
A Green Loan is any type of loan instrument made available exclusively to finance or refinance a new or existing “green project”, with a focus on the use of proceeds of the funds. LMA suggests such use of proceeds may include energy efficiency, clean transportation, and renewable energy.
SUSTAINABILITY LINKED LOANS
A sustainability linked loan is a facility which incentivises a business’s achievement of predetermined sustainability objectives. The use of the loan proceeds does not need to be for a green project and is more often used for general corporate purposes. Instead of determining a specific loan purpose, sustainability linked loans seek to improve the sustainability of the borrower’s business overall by aligning loan terms (to include pricing) to the borrower’s performance against predetermined sustainability goals.
Green Loans and Sustainability Linked Loans can offer corporate borrowers an attractive alternative to high interest rates on traditional lending.
THE IRISH MARKET AND GLSLLS
In recent years, banks operating in Ireland have been engaging in green and sustainable finance across their lending books and investing in the growth of this category of finance, e.g. Allied Irish Banks p.l.c., has set a goal to convert 70 per cent of all new lending to be “green” or to assist in the transition to a net zero carbon economy by 2030, which in 2021 accounted for €2 billion of its lending. In 2022, there was a greater volume of green finance and sustainability-linked loans as banks continue to deliver on their core values and sustainability commitments.
Initially, GLSLLs were available only to large corporates, but they have steadily seen further expansion into the mid-size corporate and SME market. The evolution and increased importance of GLSLLs has coincided with the corporate shift towards Environmental, Social and Governance (“ESG”) performance across businesses of all sizes, offering them the chance to leverage good ESG strategy into financing opportunities to grow their businesses.
CONCLUSION
Ireland is set to be a key player on the sustainable finance world stage with Sustainable Finance Ireland having published its National Sustainable Finance Roadmap in late 2021, which sets out its plan to make Ireland a leading sustainable finance centre by 2025 through the acceleration and expansion of GLSLLs. These loans will not only allow banks to assist their customers to achieve their ESG goals, but will also help banks to achieve theirs, while keeping the effects of current inflationary pressures at bay.
For guidance on Green Loans and Sustainability Linked Loans, please contact Nicola Hackett.
Holmes provides services across Ireland and they also have an office in London. The team is particularly active in property finance, advising on a number of high-profile development finance matters, M&A financing and restructuring transactions. The ‘learned and astute’ L...
Harry Fehily
Banking and Finance | Legal 500 EMEA 2020
Lisa Killeen is learned and astute. She understands the brief especially complex matters, she takes a professionally strong and capable stand and she represents the client thoroughly. Her communication skills are excellent and continuously keeps us briefed.
Lisa Killeen
Banking and Finance | Legal 500 EMEA 2020
Holmes provides services across Ireland with an office in London also. The team is particularly active in property finance, advising on a number of high-profile development finance matters, M&A financing and restructuring transactions.
Lisa Killeen
Banking and Finance | Legal 500 EMEA 2020
Holmes O’Malley Sexton provides services across Ireland, with offices in Dublin, Limerick and, as of June 2019, Cork, and also has an office in London. The team is particularly active in property finance, advising on a number of high-profile development finance matters, an...
Banking and Finance | Legal 500 EMEA 2020
Very knowledgeable and easy to communicate with. Practice head(s): Harry Fehily and Lisa Killeen.
Banking and Finance | Legal 500 EMEA 2020
They are capable, experienced and commercial. Practice head(s): Harry Fehily and Lisa Killeen.
Banking and Finance | Legal 500 EMEA 2020
Lisa Killeen is learned and astute – she understands the brief, especially complex matters, she takes a strong and capable stand, and she represents the client thoroughly. Clients find her extremely professional. Her communication skills are excellent and she continuously ...
Banking and Finance | Legal 500 EMEA 2020
The 'articulate and intelligent' team has a national presence, with offices in Dublin, Cork and Limerick. It is highly experienced in property and construction finance, as well as M&A finance and refinancings. Limerick-based Lisa Killeen leads the practice.
Lisa Killeen
Banking and Finance | Legal 500 EMEA 2021
Lisa Killeen is top class – professional, diligent and leaves no stone unturned.
Lisa Killeen
Banking and Finance | Legal 500 EMEA 2020
The 'articulate and intelligent' team has a national presence, with offices in Dublin, Cork and Limerick. It is highly experienced in property and construction finance, as well as M&A finance and refinancings. Limerick-based Lisa Killeen leads the practice.
Banking and Finance | Legal 500 EMEA 2021
Excellent and professional and know their brief well.
Banking and Finance | Legal 500 EMEA 2021
A firm of substantial scale. Their lawyers have very close relationships with their clients and in addition to providing legal advice are a trusted adviser and confidante. The team are very well networked and are very visible in the market that they serve.
Banking and Finance | Legal 500 EMEA 2021
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