How Green Finance is powering a sustainable tomorrow

Every one of us holds the duty of keeping our environment safe and healthy for future generations. Manufacturing and energy producing companies too are doing their part! At some point in time, all manufacturing and energy producing companies try to achieve the target of meeting zero carbon emissions. Doing so helps in keeping our environment safe for future generations. A new concept has come out of this. It’s called ‘Green Term Loan Agreement.’

The history of Green Finance goes back to the 1970’s. But it finally started becoming popular after the World Bank issued Green Bonds in 2008. Post covid, this popularity grew even more!

Environmental, social and governance factors (ESG) are used to understand how sustainable a company or investment are. ESG investing is a kind of sustainable investing. It takes into account environmental, social and governance factors to determine an investment’s financial returns and its all-round impact.

In fact, the global Environmental, Social and Governance assets are on track. They are expected to exceed $53 Trillion by 2025.

So, still wondering what a green term loan agreement is? Green loan financing is a special form of financing where the loan taken will be used for pushing sustainable green projects. Green Financing pushes projects that are economically and environmentally viable to reduce the carbon emissions in our country. How the funds are to be used, not to be used by the company and the results of breaking this agreement are stated in the T&C of this contract.

To create awareness about preserving our environment, capital market bodies too undertook major initiatives. In December 2007, the Reserve Bank issued a notification on ‘Corporate Social Responsibility, Sustainable Development and Non-financial Reporting – Role of Banks’. It highlights the importance of global warming and climate change in the context of sustainable development.

In 2012, SEBI made it mandatory for top 100 NSE & BSE companies to publish annual business responsibility reports and revise it from time to time. What’s more, in May 2017, SEBI listed guidelines for issuance of green bonds and specified the disclosure requirements.

Few of the Indian listed companies have also issued green bonds like NTPC Green RE Ltd signed a green term loan agreement of Rs. 1,325 Cr with Union Bank of India. Of this, Rs. 825 Cr are secured loans for 20 years. The rest were unsecured loans for 5 years. So here’s hoping all your doubts about green loan financing are sorted and the concept is totally clear!