The Green Loan Principles are a voluntary framework, maintained by three major loan market associations, that sets out what a loan must do to be labeled “green.” At the center of the framework are four requirements: proceeds have to fund eligible environmental projects, the borrower has to document how it picked those projects, the money has to be tracked separately from general corporate cash, and the borrower has to report back to lenders on how the funds were spent and what they achieved.
First published in 2018 and most recently updated on March 27, 2025, the principles target the wholesale and syndicated loan market and give lenders and borrowers a shared vocabulary for structuring environmentally focused financing.
The Four Requirements
Every loan labeled green under the framework must satisfy all four components. They are not tiers to pick from.
Use of Proceeds
The defining feature of a green loan is that the borrowed funds go toward eligible green projects. Those projects must be described in the loan documents and, where applicable, in marketing materials. The description should include the expected environmental benefits, whether that means reducing carbon emissions, improving water quality, or restoring degraded land. Research and development costs tied to the green project also count. Proceeds cannot quietly drift toward general corporate spending that has no environmental link.
Project Evaluation and Selection
Borrowers must explain their environmental objectives and spell out how they decided a particular project qualifies. That means disclosing the criteria used to identify eligible projects and describing how potential environmental and social risks are managed. Lenders reviewing a green loan proposal need to see this internal decision-making process documented clearly enough to evaluate whether the project genuinely fits the eligible categories.
Management of Proceeds
Loan proceeds should be credited to a dedicated account or tracked through an internal system that keeps green funds separate from general corporate cash flows. The point is transparency and an audit trail. Many borrowers use a formal internal register that records exactly how much has been allocated to each approved project, which makes periodic compliance reviews straightforward.
Reporting
Borrowers must keep up-to-date information on how the loan proceeds have been used. That information should be refreshed annually until the loan is fully drawn, and updated afterward whenever material developments occur. Reports should include a list of the green projects funded, the amounts allocated, and the expected environmental impact. These reports only need to go to the institutions participating in the loan, not to the public.
Where confidentiality agreements or competitive concerns limit how much detail a borrower can share, the principles allow reporting on an aggregated portfolio basis rather than project by project. Borrowers who can track achieved impacts rather than just projected ones are encouraged to include those figures.
What Projects Qualify
The principles provide an indicative, not exhaustive, list of project types. The flexibility lets the market adapt as new technologies emerge, while giving lenders a concrete benchmark for assessing whether a proposed project belongs. Recognized categories include:
- Renewable energy: production, transmission, appliances, and related products
- Energy efficiency: upgrades to new or existing buildings, energy storage, district heating, and smart grids
- Pollution prevention and control: wastewater treatment, emissions reduction, soil remediation, waste recycling, and waste-to-energy facilities
- Sustainable management of natural resources: sustainable agriculture, aquaculture, forestry, afforestation, and land restoration
- Biodiversity conservation: protection of terrestrial, coastal, marine, and watershed environments
- Clean transportation: electric and hybrid vehicles, public transit, rail, infrastructure for clean-energy vehicles, and multi-modal transport
- Sustainable water management: drinking water infrastructure, wastewater treatment, urban drainage, and flood mitigation
- Climate change adaptation: early warning systems, climate observation infrastructure, and community resilience projects
- Circular economy products and processes: eco-labeled products, resource-efficient packaging, and environmentally certified production methods
- Green buildings: structures meeting recognized regional, national, or international environmental certification standards
Because the list is non-exhaustive, borrowers can make the case for projects that fall outside these categories if the environmental benefit is demonstrable. In practice, lenders are far more comfortable approving projects that map cleanly onto one of these recognized types.
Does the Borrower Need an External Reviewer
The principles recommend appointing an external reviewer when appropriate but acknowledge that self-certification by the borrower may be sufficient in some cases. In practice, most syndicated green loans involve some form of independent review because lenders in a syndicate want assurance beyond the borrower’s own assessment.
Before the loan closes, borrowers typically prepare a Green Loan Framework document explaining how the financing aligns with all four core components. An external reviewer then evaluates that framework. The most common form is a Second Party Opinion, where an independent firm issues a written opinion on alignment with the principles. Verification is a more detailed process in which an independent party checks financial or non-financial data against an external standard, through a formal audit, a measurement-based report, or certification against a recognized label. Some borrowers rely instead on a green loan scoring or ESG rating.
Cost and timeline vary with the complexity of the project and the type of review selected. The resulting review report is typically included in the loan documentation so every lender in the syndicate can evaluate it.
How Green Loans Differ From Sustainability-Linked Loans
The distinction trips up a lot of people, and it matters because the two products work in fundamentally different ways. A green loan restricts what the money is spent on. A sustainability-linked loan (SLL) adjusts the loan’s financial terms based on whether the borrower hits agreed-upon sustainability targets, but the proceeds can be used for any purpose.
Under a green loan, the environmental benefit is baked into the project itself: the borrower builds a solar farm or upgrades a wastewater treatment plant, and the loan documents lock the funds to that purpose. Under an SLL, the borrower and lender agree on key performance indicators and sustainability performance targets. If the borrower meets or exceeds them, the interest rate drops. If performance falls short, the rate can increase.
SLLs have become the dominant product in sustainable lending. In 2024, the global sustainable loan market reached roughly €907 billion, with SLLs accounting for about 72% of that volume. Green loans grew more modestly at around 6% year-over-year. The SLL structure appeals to a wider range of borrowers because it doesn’t require tying proceeds to a specific project.
What “Voluntary” Means in Practice
The Green Loan Principles are explicitly voluntary recommended guidelines, not regulations. No government agency enforces them, no statute codifies them, and no regulator penalizes a borrower for labeling a loan green without following them. The principles themselves state that they are to be applied “on a deal-by-deal basis depending on the underlying characteristics of the transaction.”
Voluntary does not mean consequence-free. If a borrower fails to provide the required reporting or mismanages the use of proceeds, the loan may lose its green designation. Lenders can build contractual protections into the credit agreement, including covenant provisions that could trigger margin increases or events of default if the borrower does not meet its green commitments. Reputational damage from a failed green loan can also make future sustainable financing significantly harder to secure.
The broader regulatory environment is in flux. The EU Taxonomy for sustainable activities sets specific, goal-oriented criteria for what qualifies as an environmentally sustainable economic activity. It is more prescriptive than the principles’ indicative project categories, and lenders in European markets increasingly expect borrowers to demonstrate Taxonomy alignment alongside compliance with the principles. In the United States, the SEC proposed in May 2026 to rescind its climate-related disclosure rules entirely, arguing they exceeded the agency’s statutory authority. The FTC’s Green Guides address environmental marketing claims broadly but do not specifically regulate green financial products.
For borrowers, the practical takeaway is that the principles set the market floor for credibility. Meeting them does not guarantee regulatory compliance in any jurisdiction, but falling short of them makes it difficult to market a loan as green to institutional lenders who have their own ESG commitments to honor.
Who Publishes and Maintains the Framework
Three industry associations jointly develop and maintain the principles: the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA), and the Loan Syndications and Trading Association (LSTA) in the United States. Together, they represent the major banks, institutional investors, and law firms that drive the global syndicated lending market. The associations also issue companion guidance documents to help market participants interpret and apply the principles consistently across different jurisdictions and deal structures.