You might have come across the term “green loans” and wondered how financing can be categorised based on its environmental features. In this short explainer, we examine the mechanisms behind this type of loan.
When the term “green” is used to describe a loan, it mostly refers to corporate loans used to finance specific projects or activities that contribute to environmental objectives, such as reducing CO2 emissions, developing climate-friendly technology or otherwise supporting society’s transition.
Examples of green loans to companies:
Green loans from Nordea are loans that meet the criteria in Nordea’s green funding framework, which is based on internationally recognised green bond standards.
For the loan to qualify as green, the borrower needs to document that the loan proceeds will be used to finance specific projects or activities that meet the criteria of Nordea’s green funding framework. You can find more information about the framework on this page, where you will also find our total corporate sustainable finance product offering.
For personal customers, Nordea offers housing loans within the framework in selected countries. To qualify for the loan, the new home needs to have a certain energy class.
One way for banks to fund their lending is through issuing bonds. A green bond is a specific type of bond where the money raised is used to finance and/or refinance specific projects or activities, or a portfolio thereof, that contributes to environmental objectives. Banks, including Nordea, typically use green bonds to refinance a portfolio of existing green assets (i.e. loans) that meet the criteria listed in their green funding frameworks.
Green bonds are popular investment objects for large institutional investors, such as pension funds, that want to support environmental and climate-related objectives.
We have a dedicated Sustainable Finance Advisory team
that supports large corporates and institutions.
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