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Green Loans versus Climate Change

Acta Legis Turkuensia 1/2024 s. 66–92
19.11.2025
Opiskelijakirjoitus

This article provides a comprehensive analysis of the regulation and impact of green loans in advancing corporate sustainability and combating climate change, with a particular emphasis on the European context.The article reviews the current regulatory landscape, encompassing both binding legal frameworks and voluntary standards such as the Green Loan Principles promulgated by the Loan Market Association. It examines the definition of green loans, the respective obligations of banks and borrowers, and the contractual mechanisms — such as sustainability covenants — employed to ensure that loan proceeds are allocated to projects with demonstrable environmental benefits.

The article identifies significant opportunities presented by green loans, including the mobilization of private capital for sustainable investments, the enhancement of corporate reputation, and the provision of financial incentives for borrowers who achieve predetermined sustainability targets. For financial institutions, green lending is increasingly mandated by regulatory requirements and market expectations, as environmental, social, and governance (ESG) risks become integral to risk management practices. Nevertheless, the article also addresses notable challenges, such as the risk of greenwashing, the relative lack of detailed regulation compared to green bonds, and the barriers faced by small and medium-sized enterprises in accessing green finance.

In conclusion, the article contends that while green loans represent a promising instrument for promoting sustainability objectives, there remains a pressing need for more precise regulation and enhanced monitoring to ensure their environmental integrity. The author advocates for the development of EU-level regulatory standards to harmonize green lending practices and strengthen the credibility of sustainable finance across the internal market.

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