Sustainability-Linked Loans have grown in popularity among both lenders and borrowers in the real estate and infrastructure sectors over the past few years as a mechanism for responsible financing.
With them, borrowers can incentivize their sustainability performance, increase access to capital, and reduce costs while lenders can better manage risk and demonstrate sustainability-related commitments to regulators and investors. And they help both parties enhance their reputations and achieve long-term sustainability goals.
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
How GRESB is used in Sustainability-Linked Loans
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.
See more examples of GRESB scores in sustainability-linked loans
In January 2022, Frasers Property secured a GBP 110 million five-year bilateral sustainability-linked loan for its UK subsidiaries, Frasers Property (UK) Limited (FPUK) and Hillington Park. A reduction in interest margins from the loan’s second year is contingent on FPUK maintaining its four-star GRESB rating. Learn more
Keppel Land Limited secured a five-year SDG 150 million sustainability-linked loan from DBS Bank, with incorporated interest rate reductions, in October 2021. These reductions were based on Keppel Land achieving predetermined ESG targets, as well as a five-star rating in the 2021 GRESB Real Estate Assessment. Read our case study to learn more.
In August 2021, Westpac secured an AUD 300 million sustainability-linked loan facility for the NSW Land Registry Services (LRS) with Sustainability Performance Targets (SPTs). The metrics of the loan focus on greenhouse gas emissions reduction, gender diversity and inclusion, and continued leadership in the GRESB Infrastructure Asset Assessment. Learn more
Colonial has signed a line of credit for EUR 1 billion, with CaixaBank acting as the agent bank. The loan is conditional on the sustainability of the company, measured by GRESB benchmarks. Colonial was recognized as a leader in responsible investment in Europe by GRESB in March 2019. CaixaBank, BBVA, BNPP, and Natixis have all acted as sustainability agents. Learn more
Subsidiaries of Frasers Property, Frasers Property AHL Limited, and Frasers Property Industrial Australia Pty Limited have secured an AUD 300 million five-year syndicated sustainability-linked loan. As an incentive, the sustainability-linked loan has a reducing pricing structure with interest cost reduction from the second year onwards if both FPA and FPIA retain a four-star rating or above in the GRESB Development Benchmark and GRESB Standing Investments Benchmark. Learn more
In April 2021, Vesteda and its banks (ABN-AMRO, ING, Deutsche Bank, Rabobank, SMBC, and Barclays) signed an agreement that has amended a EUR 700 million revolving facility agreement into a sustainability-linked revolving facility agreement. The interest margin is linked to achieving four sustainability objectives, one of which is its GRESB score. Learn more
CapitaLand obtained a SGD 500 million sustainability-linked loan from United Overseas Bank (UOB). The bilateral loan is explicitly linked to GRESB and CapitaLand’s achievements within the GRESB benchmark, with interest reductions contingent on maintaining and/or improving its GRESB rating. Learn more
Link Asset Management Limited (Link) signed an AUD 212 million five-year sustainability-linked loan with DBS. The loan incorporates a reduced pricing structure with interest cost savings. based on the company maintaining its listing on leading global sustainability indices and achieving milestones through its performance in GRESB ratings. Learn more
Frasers Commercial Asset Management, manager of Frasers Commercial Trust (FCOT), secured a sustainability-linked loan of SGD 100 million. The loan is tied to FCOT maintaining a GRESB rating of four stars or more. Learn more
New World Development Company Limited (NWD) signed a loan with DBS Hong Kong (DBS) of HKD 1 billion. The first sustainability-linked loan for NWD, a discount will become available on the interest rate of the loan when it achieves pre-determined sustainability milestones that have been agreed upon with DBS. These milestones will be determined by the company’s performance within the GRESB benchmark. Learn more
Thames Waters linked its interest payments on its GPB 1.4 billion revolving credit facility to its GRESB infrastructure score. It ran until 2023, with the option of a two-year extension, and was structured so that performing well within the GRESB benchmark would result in a lowered margin with financial gains paid into the company’s charitable fund. Learn more
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