Sustainability-linked loans in real estate: principles, practice, and credibility
Sustainability-Linked Loans (SLLs) are an increasingly important financing tool in real estate, linking loan terms to a borrower’s sustainability performance. As adoption grows, consistent and credible approaches to KPI selection, target-setting, reporting, and verification are critical to maintaining market integrity.
To support more robust market practice, GRESB has developed sector-specific guidelines for Sustainability-Linked Loans in real estate. The guidance applies the core components of the Sustainability-Linked Loan Principles to real estate entities, offering practical considerations for borrowers, lenders, and advisors across KPI selection, Sustainability Performance Targets, reporting, and verification. It is relevant both to formally labelled SLLs and to SLL-like financing structures. While SLLs remain bespoke by design, the guidelines aim to promote greater consistency and comparability across the market. GRESB metrics and benchmarks are commonly used within SLL frameworks to inform KPI selection and target calibration, with examples highlighted below.
This resource was developed with the practical feedback from leading market participants and reviewed by the Asia Pacific Loan Market Association and the Loan Market Association.
How GRESB is used in sustainability-linked loans
GRESB is increasingly becoming a cornerstone of these loans, with scores and benchmark standings being used both to set and manage Sustainability Performance Targets and to support reporting and verification of the loan.
This is because GRESB is:
- An objective, widely recognized industry standard for measuring sustainability
- Transparent and accountable, with clear standards and methodology
- A diverse benchmark, making it possible to incorporate performance against relevant peers
- Sub-sector specific, allowing loan conditions to be based on relevant parameters
- An evolving standard that allows targets to be set based on continuous improvements
Typically, a firm looking to decarbonize its operations or achieve other significant sustainability goals will work with a lender to outline a framework that uses the GRESB Scores and Ratings, a specific score, or some other verifiable performance indicator found in the GRESB Scorecard.
Take, for example, Hang Lung Properties – a leading real estate developer in China that has set ambitious GHG reduction targets for 2023. To help achieve a 70% reduction compared to its 2018 baseline, Hang Lung has embraced sustainability in its financing.
In 2021, the firm signed a sustainability-linked loan for HKD 1 billion over three years with BNP Paribas for general corporate use, which features a number of predetermined sustainability performance targets that, if met, will reduce funding costs over the life of the loan.
The company’s GRESB results play a central role in this agreement, with loan terms being based on maintaining the firm’s GRESB rating as well as achieving annual reductions in energy intensities across key parts of its portfolio – information that is tracked and validated through the GRESB Assessment.
To help reach its goals, Hang Lung directs loan capital to projects such as installing solar systems on its properties, increasing the efficiency of its HVAC systems, and retrofitting aging buildings. Read more about the loan and Hang Lung’s work.
Companies using GRESB in their sustainability-linked loans
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