Green loans market ‘adapting to borrower needs’ in 2026

The UK green loans market had been growing steadily in recent years as companies moved increasingly to align corporate borrowing with their overarching sustainability goals. But in the last 12 months we’ve seen a significant slowdown in interest which, in turn, has encouraged many lenders to broaden their sustainable finance products and expand their green loans portfolio.

In 2018, in recognition that green loans were becoming an increasingly important area of sustainable finance, the London Market Association (LMA) published a high-level framework of market standards and guidelines for financial institutions to provide continuity across the wholesale green loan market. In November 2024, it also published the Green Loan Rider – the first standardised drafting for green loans.

Over the last 12 months increased political pushback in some regions globally – particularly by the US government – has significantly altered the global sustainable finance landscape that we see today. This, together with the challenges posed by the EU omnibus package, has limited financial incentives – at least in the short-term – for borrowers.

These developments are also causing lenders to seriously rethink their strategies around sustainable finance products. However, as the market evolves to meet borrower realities, there are still many options for lenders in this space.

The LMA principles and Green Loan Rider

Green loans can be used to finance or re-finance new or existing green projects. However, unlike sustainability-linked loans, green loans involve funds that are allocated to projects underpinned by specific green objectives, such as renewable energy projects. A green loan may form one or more tranches of a loan facility and may be made by way of a term loan, revolving credit facility or contingent facilities.

Since 2018, the LMA principles (PDF 4 pages / 3.4MB) have established a standardised approach for lenders to identify, assess, and finance green projects. The four core components are:

• use of proceeds – the proceeds of the loan must be used solely for projects which have a clear environmental benefit, including, but not limited to, energy efficiency, renewable energy, pollution prevention and control, clean transportation, and sustainable water management, and any refinancing needs to be fully documented;
• process for project evaluation and selection – borrowers are required to explain how the project aligns with environmental objectives and provide appropriate evidence to track, monitor, and evaluate its impact;
• management of proceeds – the funds should be tracked, typically in a dedicated, separate account to maintain transparency, and borrowers are also encouraged to establish an internal governance process to track the allocation of funds;
• reporting – borrowers must provide regular updates – usually annually – on how the proceeds have been used, details of the relevant projects and their environmental impact.

In November 2024, the LMA’s Green Loan Rider established standard drafting provisions for green loans, providing this corner of the market with a much-needed benchmark for how these loans should be documented. In effect, the Rider helps lenders and borrowers incorporate Green Loan Principles (GLP) to convert a standard loan into a green loan.

Challenging environment

There is no denying that political pushback against the sustainability agenda globally, particularly in countries like the US, has dampened some of the initial flurry of enthusiasm from borrowers to take out green loans.

In Europe, the EU’s Omnibus I simplification package proposes significantly scaling back sustainability reporting and due diligence requirements for companies under the EU Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D/CSDDD) by reducing the number of companies subject to these rules. Pending final approval from the Council of the European Union, the finalised proposals, which were published on 24 February, are due to come into force in the coming weeks.

The immediate impact of these geopolitical and regulatory developments on the green loan market is not altogether clear at this early stage. In practice, however, we have already seen diminishing interest from borrowers in taking out green loans for a variety of reasons.

Firstly, many businesses continue to weather the economic fallout from the war in Ukraine, the evolving situation between the US, Israel and Iran, and volatile financial markets, meaning that rising inflation and increases in the cost of living are taking their toll. This, coupled with the financial, regulatory and reputational risks of non-compliance, has made some borrowers more cautious in taking out green loans, and caused others to deprioritise green financing altogether while they wait for these political and financial headwinds to subside.

In the UK, we’ve seen growing interest for green loans in the real estate finance, social housing and higher education sectors. Usually, any breach of the green loan requirements in a loan agreement only results in declassification. However, recently we saw one lender attempt to include an event of default for a green misrepresentation, stating that they would want the opportunity to distance themselves from the borrower should this turn out to be material.

Indeed, growing allegations of ‘greenwashing’ – and the public backlash that often ensues – are causing many banks to adopt a more cautious approach to avoid any potential reputational headaches.

Banks typically offer lower margins on green loans. This has been particularly advantageous for developers aiming to achieve a specific energy performance certificate (EPC), Building Research Establishment Environmental Assessment Methodology rating (BREEAM) or even the ultra-low energy Passivhaus rating for their buildings. However, the low margin discount for such products has disincentivised some borrowers at a time when increased reporting requirements are proving progressively more onerous and costly to manage.

The GLP recommends that the net proceeds of the loan should be paid into a separate, dedicated account, both to maintain transparency and ensure that the proceeds are used only for the intended purposes of the green loan. In practice, however, few lenders appear to be enforcing this, seeing it as one administrative burden too far, specifically on a refinancing. This raises the question to what extent the sustainability credentials of green loans are being effectively monitored, tracked and verified across the board.

Future outlook

What is clear is that many banks still want to do green lending. As the sustainability landscape continues to evolve and adapt to meet economic and market challenges, banks increasingly are questioning whether they are “outliers” when they struggle to apply the LMA’s GLP to real‑world lending.

Yet, even against the backdrop of sustainability roll-backs in the US, the EU and elsewhere, we are still seeing enquiries from lenders wanting to know whether green loans are popular, which in itself is a positive sign for the market. The answer is they are, but perhaps not in the format that the LMA, with respect to its GLP and the Rider, initially envisaged.

It is worth remembering that the LMA model was heavily inspired by public bond market frameworks established by the International Capital Market Association (ICMA). Practically speaking, this does not align well with private bilateral or syndicated loans where borrowers come with a specific pre-defined outcome already in mind.

In March 2025, the LMA updated its GLP (PDF 5 pages / 326 KB) to draw a clearer distinction between mandatory requirements and recommendations. Consequently, increasingly we are seeing lenders offer ‘softer’ products that acknowledge sustainable and green-focussed activities without requiring full compliance with LMA standards. These are proving more popular with borrowers from a cost standpoint.

These updates signal that the LMA is already keenly aware of the need to adapt to the evolving market. It is highly expected that it will re-examine the GLP requirements again and publish further updates. This could, in turn, lead to more products coming onto the market to entice borrowers in the near future.

The UK’s new National Wealth Fund – the expanded successor to the UK Infrastructure Bank – is also continuing to explore retrofit products and has already provided backing for a number of green retrofit loans since it was formally established in October 2024. Given its potential to offer beneficial pricing for such loans, there is considerable potential that this influx of capital could help supercharge the development of sustainable retrofit programmes across the UK.

Green finance may appear to have temporarily fallen down the priority list for some companies. However, as the pressure continues for the UK and other nations to meet net-zero targets, it is clear that green loans still have a vital role to play in supporting a just transition. The current challenges that lenders are facing are industry-wide and being felt globally, but firms like ours are here to help tailor their approach and, if needed, recalibrate their sustainable and green products to meet the new status quo.