Green loans: Financing a greener earth.

While all types of loans may be called green, considering that’s the colour of money, green loans are a specific type of loan. They are integral to green financing – financing toward sustainable development. The market is big and still growing: green bonds alone passed USD 4 trillion in cumulative issuance by the end of 2025, with USD 653.5 billion issued that year – the second-highest annual total on record.

Green loans can have financial and environmental benefits, and they aren't hard to find – Denmark's big mortgage lenders offer green loans for commercial property, funded by green bonds.

In this article, we’ll cover green loans, exploring their benefits and zeroing in on how the real estate sector, in particular, can leverage them to make sustainable buildings.

What is a green loan?

A green loan is a type of loan that exclusively funds projects that are environmentally friendly and contribute to the green transition (green projects). For instance, a green loan may be used for projects that help reduce greenhouse gas (GHG) emissions.

In essence, green loans can finance various projects as long as they contribute to the climate targets – reducing emissions and limiting global temperature rise to 1.5°C, with net-zero CO₂ emissions around 2050.

Like any loan, a green loan comes with conditions. Banks and mortgage lenders offer them to businesses and individuals alike.

They're still a small slice of lending, though. When the European Banking Authority surveyed EU banks in 2023, green loans averaged 4.5% of their total loan books.

What are the requirements for green loans?

According to the Green Loan Principles (GLP), published by the LMA, APLMA, and LSTA and last updated in March 2025, a green loan is any loan made available exclusively to finance or refinance, in whole or in part, new or existing eligible green projects. The exact requirements vary by loan type/category and lender.

Some green loans may be available to specific sectors, such as transportation or construction. However, many loans have flexible requirements and can fund various green projects.

Normally, a borrower must satisfy the lender about the project's financial soundness and how it will positively impact the environment. The former requirement is just as important because green loans are loans. So lenders want to ensure that the borrower doesn’t default and that the project merits the loan based on its potential financial and environmental outcome.

Expect to report, too. Since the GLP's 2025 update, reporting to lenders on how the proceeds were used is mandatory, at least once a year, and the environmental benefits have to be assessed and, where feasible, quantified.

That's a measurement requirement, not a formality. If the loan funded an energy retrofit, someone will ask what the building uses now.

Who can apply for a green loan?

Green loans aren't just for businesses. Many lenders offer them to individuals for business or personal projects. For instance, homeowners can apply for a green loan to install solar panels on their property for clean energy. Similarly, a person may qualify for a loan earmarked for sustainable development for buying an electric car.

Again, who may qualify for a green loan depends on the conditions of the loan. For instance, some green loans are exclusively designed for energy-related projects. So organisations/individuals trying to switch to renewable energy can apply for such loans.

Benefits of green loans for borrowers and lenders

Green financing, particularly green loans, can benefit both the borrower and the lender. Of course, the environment is the big winner if these loans are utilised efficiently and transparently.

For borrowers

• Alignment with environmental goals: Funding green projects with money from green loans can help businesses better align their work with their environmental, social, and governance (ESG) goals. As these loans must provide environmental benefits in some form, they reinforce the importance of sustainability throughout the project development. That, in turn, helps ensure the project does what it’s supposed to.
• Increased stakeholder and public approval: Companies can use green loans to fund sustainability projects, lowering their carbon footprint. This will show all stakeholders and the public the company’s commitment to the environment and its part in mitigating the climate crisis.
• Favourable terms: Some green loans come with a lower rate or longer terms, but don't count on it. Where a discount shows up in real estate, it tends to follow the building rather than the label – one study of more than €30 billion of European commercial property loans found green buildings got loan spreads around 5% lower (5% of the spread, not five percentage points). In the bond market, by contrast, research covering 2015 to 2025 finds the green premium has shrunk to roughly nothing. Lenders price risk, not good intentions.

For lenders

• Reduction in financed emissions: Banks and other financial institutions can use green loans to reduce their financed emissions. Although indirect, financed emissions are responsible for significant global emissions. Green loans can help lenders divert their investments toward eco-friendly projects.
• Risk management: Since January 2026, EU banks have had to manage ESG risk as part of their core risk framework. The European Banking Authority's guidelines, applying from 11 January 2026, point them at the energy efficiency of real estate collateral and ask for their property portfolios broken down by it. A green loan backed by good energy data is easier to evidence on both counts.
• Financial and environmental returns: Lenders can profit from the returns on green loans while helping reduce environmental damage. It’s a classic two-birds-with-one-stone situation; lenders can play their part in the green economic transition. With changing consumer sentiment and increasing awareness, sustainable projects are likely to succeed now more than ever.

Green bonds vs. green loans

Green bonds should not be confused with green loans. While both are financial instruments for funding environmentally friendly projects, they differ in scale and operation.

Green bonds are fixed-income securities issued by corporations, municipalities, or governments and sold to investors to raise capital for environmental projects. They may be listed on a public exchange or sold privately to institutional investors.

Money from these bonds may help banks and other lenders issue green loans to businesses and individuals. Unlike green bonds, green loans involve actual borrowers who will use the money for green projects. So, there’s direct engagement with borrowers.

Both put a return in the hands of whoever provides the capital – investors in a bond's case, the lender in a loan's – alongside the environmental benefit. So, it’s safe to say that green bonds and green loans are complementary financial instruments that help power sustainability initiatives; they help redirect capital toward projects that can mitigate climate change.

Europe leads the green bond market. It accounted for 45% of the world's aligned sustainable debt issuance in 2025, and green bonds made up 6.9% of all bonds issued by EU companies and governments in 2024 – up from 0.1% a decade earlier.

Since December 2024 there's also an official EU label. The European Green Bond Standard requires the proceeds to go to activities aligned with the EU Taxonomy, with a 15% flexibility pocket. Uptake so far is narrow – around 7% of European green bond issuance in 2025 – because the bar sits well above the market's voluntary principles.

In Denmark, the link between bonds and loans is direct: green mortgage loans are funded by green covered bonds. The bond and the loan are two ends of the same instrument.

Green loans for real estate: How can they be used to reduce emissions?

Green loans present many opportunities for the real estate sector, including developers, architects, and building managers. These loans can be leveraged to construct sustainable buildings and infrastructure projects. But that’s not all – green loans can also provide funding for making existing buildings greener.

Many green loan schemes specifically target real estate development and retrofit projects. The proceeds from these loans can be used to make a building more energy-efficient or improve its waste management. For these projects, the question is rarely whether the work is green. It's whether you can prove it – and in the Nordics, proof mostly means the energy label.

Realkredit Danmark's green commercial loan, for example, requires energy label A or B for buildings from before 2020, A2020 for newer ones, or a renovation that improves energy efficiency by at least 30%. Nykredit's green loans roll back into ordinary financing at refinancing if the property no longer meets its criteria.

So a green loan isn't something you qualify for once. You have to stay eligible, and that's a data question.

Used well, a green loan can go a long way towards paying for itself: if the retrofit cuts energy costs, the savings cover part or all of the repayments. Whether they actually do depends on the savings you measure, not the ones you modelled – so set a baseline before the work starts. These loans can minimise emissions for both new and existing buildings. That, of course, is great for the environment and helps reduce the borrower's carbon footprint. Funds from green loans can also be used to meet any regulatory requirements for buildings, such as energy or water consumption.

Certifications matter too. The GLP recognises green buildings that meet regional, national, or internationally recognised standards or certifications, and lenders often set minimum levels – LEED Gold or BREEAM Excellent are common thresholds, and DGNB is the other one you'll meet in the Nordics.

Keep in mind what a certificate is: evidence of how a building was designed and rated at a point in time. It isn't a meter reading.

Seize the opportunity!

Green loans can make a big difference if used properly. While they’re a financial instrument for profit, their impact on the environment makes them a worthy option. For small businesses and corporations, green loans can power initiatives that reduce GHG emissions and promote sustainability. Green loans are readily available in Denmark, across the Nordics, and in the EU. Which ones you can get – and keep – depends on what your energy data can prove. Start there.

FAQs

What are the four principles of a green loan?

The four principles of a green loan, as per the GLP, are:

• Use of Proceeds: Funds must be used exclusively for eligible green projects
• Process for Project Evaluation and Selection: Clear communication of environmental objectives and criteria for project selection
• Management of Proceeds: Proceeds should be tracked and managed to ensure they are allocated to green projects
• Reporting: At least annual reporting to lenders on how the proceeds are used – mandatory since the 2025 update – with the environmental benefits assessed and, where feasible, quantified

The GLP also recommends that borrowers set out a green loan framework and get an external review of it. Neither is mandatory.

What are ESG loans?

ESG loans incorporate environmental, social, and governance (ESG) criteria into the lending process. They are designed to promote sustainable and responsible business practices by aligning the borrower’s performance with ESG standards.

The main types are green loans, social loans, and sustainability-linked loans, each with its own principles from the LMA, APLMA, and LSTA. The difference that matters: green and social loans fund specific projects. A sustainability-linked loan can be used for general purposes, with the margin tied to the borrower hitting agreed sustainability targets.

How much can you borrow with a green loan?

The amount you can borrow with green loans varies widely and depends on several factors, like the lender's policy, the borrower’s creditworthiness, and the nature of the green project. Green loans range from small amounts for individual projects to large sums for major infrastructure or corporate initiatives. As such, there’s no standard borrowing limit.