Green loan growth could outstrip green bonds in near term: ING

LONDON (Reuters) - Global green loan growth could outpace the green bond market over the next few years as loans are accessible to a wider range of borrowers and can carry some clear financial incentives, ING’s global head of sustainable finance said.

As governments and companies seek to meet global targets to cut greenhouse gas emissions and combat climate change, appetite among investors for so-called green loans and bonds has risen.

Both are used to fund projects which have clear environmental benefits, such as renewable energy, low-carbon transport or sustainable buildings.

While still a tiny fraction of the overall bond market, the global green bond market was worth around $160 billion last year and is expected to reach at least $200-250 billion this year.

By contrast, the volume of green loan deals has been sporadic until last year and the amount is less easy to quantify due to varying standards for what constitutes a green loan.

However, green loan growth could be significant as it becomes possible to get more bespoke financing terms, said Leonie Schreve, ING’s global head of sustainable finance.

“In general, the green loan market has the ability to grow significantly - significantly bigger than the green bonds market,” Schreve said.

“More parties and clients are actively reaching out to us (for green loans). They are attractive and simple for the market,” she added.

For example, ESG (environmental, social and corporate governance)-linked loans have interest rates which are linked to the company’s sustainability performance and rating, providing an incentive for companies to take out green loans over normal ones.

If the company’s ESG rating goes up, the interest rate on the loan goes down and vice versa, Schreve said.

“In general, discounts and penalties vary between 5 to 10 percent of the margin. In today’s competitive and liquid financial markets, companies perceive this as meaningful,” she added.

ING has been involved in green loan deals worth around 2.2 billion euros ($2.6 billion) in total over the past year. It has so far issued green bonds worth around 20 billion euros in total.

Reporting by Nina Chestney, editing by David Evans