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New Guidance Documents on the Application of the Green Loan Principles in Real Estate Finance

December 21, 2020

The Loan Market Association (LMA) recently published two new guidance documents on the practical application of the internationally recognized voluntary global Green Loan Principles (GLPs) in the real estate finance industry (Guidance Documents).

The first new Guidance Document relates to the application of the GLPs in the real estate finance (REF) investment lending context and focuses on green loan funding for green buildings. The second new Guidance Document discusses the application of the GLPs in the real estate retrofit (RERF) lending context and specifically pertains to green loan funding for the retrofit of existing buildings. Both Guidance Documents were issued with a view to addressing frequently asked questions in relation to the application of the GLPs to real estate financing.

The LMA first issued GLP guidelines in 2018 alongside the Loan Syndications and Trading Association and the Asia Pacific Loan Market Association. They then updated the GLPs and issued guidance documents on practical considerations for structuring, documenting and monitoring transactions involving green loans in May 2020. For more information about the GLPs and the first guidance documents issued to support the GLPs and the Sustainability Linked Loan Principles, please see our previous Blakes Bulletins:


The Guidance Documents broadly define green loans as “any type of loan instrument made available exclusively to finance or re-finance, in whole or in part, new and/or existing green projects”. The Guidance Documents also offer a reminder of the four core components of the GLPs, which consist of the following:

  1. Use of proceeds

  2. Process for project evaluation and selection

  3. Management of proceeds

  4. Reporting

Since green loans are not sector specific, they can be used in any industry, including REF investment transactions and RERF transactions.


No overarching criteria apply to the determination of green projects in the REF investment transactions and RERF transactions. Typically, financial institutions will each establish their own set of internal standards regarding the types and categories of projects that will classify as eligible green projects. In addition, financial institutions may implement internal technical screening criteria to better identify the projects they deem eligible for funding under green REF investment loans or green RERF loans.

While there is not yet a consensus on the adoption of certain certifications and standards across the real estate industry to help determine the green credentials of a given property, financial institutions will sometimes use such external certifications and standards to guide their technical internal screening processes. Despite the foregoing, the Guidance Documents emphasize that eligibility criteria should be clearly agreed upon and documented by the parties. This is especially relevant in order to avoid claims of “greenwashing”, where a project is presented as “green” but that claim proves misleading or inaccurate.

REF Investment Context

The new Guidance Documents provide some examples of green project categories that may qualify to be funded under a green loan. They include the following:

  • The acquisition of a green building or portfolio of green buildings/properties

  • The refinancing of a green building or a portfolio of green buildings

  • The financing of capital expenditures for improving energy performance and water consumption as well as other expenditures relating to the financed building or portfolio of buildings that contribute to climate change mitigation or other environmental goals (i.e., retrofit works)

It should be noted that there is no universally applicable standard as to what makes a building a “green building”. Nonetheless, the World Green Building Council suggests the following definition: “a building that, in its design, construction or operation, reduces or eliminates negative impacts, and can create positive impacts, on our climate and our natural environment”. Several standards and certifications can be useful in assessing the positive impacts of a particular property on our climate and/or natural environment. For instance, design-based certifications include the LEED certification, the Energy Performance Certificates and EDGE certification.
Importantly, a building may qualify as “green” at the beginning of a loan term and eventually cease to comply with the relevant requirements over the course of the loan term. Given that risk, the Guidance Documents suggest that borrowers and lenders agree on a mechanism that allows for the assessment of the building eligibility at the time of drawdown, rather than at the onset of the project, or that the parties agree at the outset on the consequences (and potential remedies) in the event of such green breach.

RERF Context

Recognizing that demolishing old, under-performing buildings to build new “green” ones may not be possible or even environmentally sustainable, the Guidance Documents emphasize the importance of retrofitting activities to improve the energy efficiency and climate resiliency of old properties.
As outlined above, while there is no blanket standard to establish the type of RERF projects that should qualify for funding by way of a green loan, eligible retrofit projects should be expected to have a significant impact on the reduction of energy consumption and carbon emissions associated with the building(s) being funded. The improvements performed on the buildings should also be easily verifiable and measurable. Various standards and certifications exist to assist in determining the merits of a green retrofit project, namely the following:

  • BREEAM refurbishment and fit-out rating

  • RICS SKA rating for non-domestic fit outs

  • TrustMark

The Guidance Documents point out that there are currently some data gaps in relation to the energy performance of buildings. This can lead to greater difficulties in identifying green retrofit works and therefore the eligibility for funding under a green loan. However, the availability of data has recently been growing and financial institutions could eventually make use of this data in setting thresholds for the post-retrofit energy performance of a building. The data could also become a promising tool for borrowers in identifying and targeting properties that would benefit most from retrofit works because of their poor energy performance.
We will continue to keep you updated on the developments of the green REF investment loans and green RERF loans in both the international and domestic real estate finance markets. We are also closely monitoring the development concerning Canada’s future transition-focused taxonomy, its requirements and how it will impact the Canadian sustainable finance market.

For further information, please contact:

Fabien Lanteri-Massa                         514-982-4034
Rebecca Dawe                                     514-982-5047
Camille Massé-Pfister                         514-982-5037

or any other member of our Financial Services group.