U.S. Markets

LSTA eyes Green loan guidelines to encourage issuance in the U.S.

NEW YORK (LPC) - The Loan Syndications and Trading Association (LSTA) is developing a standard industry framework for Green loans to allow more activity in the U.S., which is lagging the European loan market due to a previous lack of corporate and regulatory support.

The LSTA kicked off its first meeting on Tuesday to develop a set of Green loan principles. It is likely to mirror the framework that the European Loan Market Association (LMA) and the Asia Pacific Loan Market Association (APLMA) set out in March.

“The key takeaway was that alignment with the Green Bond Principles and alignment with the LMA and APLMA Green Loan Principles is paramount,” said Tess Virmani, senior vice president and associate general counsel of the LSTA.

Under the LMA and the APLMA’s principles, a Green loan’s proceeds have to fund green projects that provide clear environmental benefits. This would be a special purpose loan issued by a pure-play company in the sustainability space.

“It’s a narrower product,” Virmani said. “Corporate loans are often for general corporate purposes which is broader than funding one or more green projects as a use of proceeds Green loan might be. Ultimately, we would want to have a framework broad enough to be applicable to all market segments and types of facilities.”


To appeal to the general corporate loan market, a new type of Green loan has emerged in Europe. These are general purpose loans whose interest margins are linked to a company’s overall sustainability achievements, such as gas emission reduction and nutrition education programs development.

For example, France’s Danone in February refinanced its €2bn revolving credit facility that includes a payable margin adjustment mechanism based on scores of companies’ environmental, social and governance (ESG) performance provided by third-party researchers, LPC previously reported.

These sustainability-improvement revolving credit facilities are growing more than traditional Green loans in Europe, said Jorge Gonzalez, global head of corporate loans at BBVA.

“There’s no use of proceeds and it’s just for general corporate purposes,” Gonzalez said. “The pricing is based on the ESG score of the company.”

However, those ESG-linked loans use a different model that doesn’t connect with the LMA’s Green Loan Principles, said Heather Lang, executive director of sustainable finance solutions at Sustainalytics, which is one of the ESG rating providers on Danone’s deal.

The LSTA aims to ultimately incorporate both types of green credits in its principles to allow more of the corporate loan appetite, according to Virmani.


The Green loan market in the U.S. is almost non-existent compared to Europe where companies are refinancing to include green principles, such as Spanish utility Iberdrola SA, which raised a record €5.3bn Green loan in January. Green loan volume was €19bn in March.

“Most of the Green or sustainability-linked loans have involved European issuers and lending institutions,” Lang said. “I’m not aware of any Green loans involving U.S. issuers to date.”

Having a standard framework in place will help to encourage more Green loan activity in the U.S., but the problem is rooted in corporate engagement in green initiatives and the lack of regulatory support.

“European shareholders and stakeholders seem to be more vocal in their support for a move towards green and sustainability and there is regulatory support as well,” LSTA’s Virmani said. “So it may be easier for European companies to justify any additional cost from monitoring, reporting and third party verification because there’s so much goodwill achieved in doing a Green loan or bond.”

“I don’t know if most companies here have been able to make that tradeoff yet, but it is early days,” she added.

But the popularity of green lending among European banks is expected to trickle down to the U.S. sooner or later.

“Europe is way ahead of the U.S. in terms of Green loans, but more and more U.S. companies are starting to get interested,” BBVA’s Genzalez said. “It’s going to happen no matter what. Utility companies are normally the first ones to come to the market.”

BBVA is the facility agent and sustainability agent on the Iberdrola SA’s €5.3bn loan. The bank was involved in 11 Green loan transactions in Europe and Latin America in 2017.