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Adoption of green loan principles 'could boost Australia’s green bond market'

The active adoption of recently drawn up green loan principles by renewable energy project financiers could help boost the Australian green bond market, an expert has said.

Finance expert Jeremy King of Pinsent Masons, the law firm behind Out-Law.com, said the use of the criteria set out in the principles would help make the underlying assets in green bonds easily identifiable.

The Green Loan Principles (4 page / 2.3MB PDF) were published in March by a green finance working party from the Loan Market Association, Asia-Pacific Loan Market Association, and the Loan Syndications & Trading Association. The working party has now published an extended iteration of the principles, providing a more in-depth explanation as to how they can be applied to revolving credit facilities whilst maintaining the integrity of the green loan product.

The principles are designed to provide a high-level framework of market standards and guidelines allowing for consistent methodology to be applied across the wholesale green loan market. The principles constitute voluntary recommended guidelines to be applied to any form of loan instrument that may be categorised as “green”.

The principles have four core components covering the use of loan proceeds for green projects, including research and development; the process for project evaluation and selection; the management of loan proceeds; and the reporting process.

Borrowers of green loans are encouraged to track the allocation of funds towards projects, and keep up to date information on the use of proceeds. The principles recommend the use of qualitative performance indicators and quantitative performance measures to communicate the expected impact of projects.

The principles also recommend external reviews, where appropriate. It suggests borrowers could have their green loan or associated framework reviewed by qualified third parties, with the ensuing report available to participating institutions on request.

Pinsent Masons’ King said the use of the principles could fit into a booming market for renewable energy finance in Australia, as the process of decarbonisation continued.

“There has been regulatory uncertainty at the Federal Government level in Australia for some time around renewable energy policy. The National Energy Guarantee is just the latest iteration of this,” King said.

King said the buoyant renewable energy finance market was partly a consequence of state-based initiatives to promote the sector, such as the Victorian Renewable Energy Target reverse auction, and the New South Wales Pumped Hydro Roadmap.

“Accordingly, there is a significant portfolio of Australian renewable energy loans that would either meet the GLP criteria already, or would meet the criteria without many changes,” King said.

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