The International Finance Corporation (IFC) is helping accelerate the growth of the $33 billion global green loan market by offering an IFC Green Loan product to create new options for businesses in developing countries to obtain green financing.
In a first for a global development institution, IFC has started offering its investment clients the option of structuring loans in accordance with the Green Loan Principles.
The principles, which are modeled on the Green Bond Principles, specify how loan proceeds should be used and how projects should be selected in order to qualify for green loan status.
This can help businesses attract additional financing and
enhance their reputation among shareholders, clients, and communities.
“The growth of the green lending market is crucial to help emerging markets shift to a low-carbon development and mitigate the adverse impacts of climate change,” said Alzbeta Klein, director of IFC’s climate business department.
“By offering our clients a green loan label, IFC seeks to play a catalytic role in growing green loans across emerging markets,” Alzbeta added.
Among international development banks, IFC is a leading provider of climate-related financing. Read more: Citi bank announces first €1 billion green bond
In the fiscal year that ended in June 2018, it committed $8.4 billion in such financing to businesses in emerging markets—including a record $4.5 billion mobilised from other investors.
This financing accounted for a record 36% of IFC’s overall investments for the year.
In accordance with the Green Loan Principles, IFC clients would be required to establish a management system to track, manage, and report on the use of proceeds of a loan for dedicated green projects and have it verified by a third party.
The financier will support its clients’ efforts to meet these requirements. The principles allow for self-certification by a borrower in some cases.
The Green Loan Principles, developed by the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA), and the Loan Syndications and Trading Association (LSTA), were adopted in March 2018 and extended in December 2018.
They are voluntary guidelines that seek to provide clarity and consistency on what constitutes a green loan.
Developing countries currently account for just $1.6 billion of the estimated $33 billion in outstanding green loans.
But the market is expected to grow rapidly, outpacing the growth of the green-bond market in the near term.