Two products dominate the sustainable lending market: Sustainability-Linked Loans (SLLs) and Green Loans. They are often confused — but they solve fundamentally different problems, and choosing the wrong one costs time, money and reputational credibility.
The one-line difference
- A Green Loan finances a specific eligible green project. The money is ring-fenced.
- A Sustainability-Linked Loan finances general corporate purposes. Its pricing is linked to sustainability performance across the whole company.
Side-by-side comparison
| Dimension | Green Loan | Sustainability-Linked Loan |
|---|---|---|
| Governing standard | Green Loan Principles (GLP) | Sustainability-Linked Loan Principles (SLLP) |
| Use of proceeds | Restricted to eligible green projects | Unrestricted (general corporate purposes) |
| Pricing mechanism | Standard pricing; sometimes a small "greenium" | Margin steps up/down against SPTs |
| Reporting focus | Allocation of proceeds and project impact | Company-wide KPI performance |
| External review | SPO recommended; independent report on project impact | SPO at signing + annual verification of KPI performance |
| Best fit | Discrete green CapEx (solar, EV fleet, green building) | Broad transition programme across the whole company |
When a Green Loan is the right answer
Choose a Green Loan when you have an identifiable, eligible green project — for example:
- A solar or wind installation.
- A green-building refurbishment aligned with the EU Taxonomy.
- An EV fleet replacement.
- An energy-efficiency retrofit exceeding the taxonomy technical screening criteria.
The GLP recognise ten eligible project categories, ranging from renewable energy and clean transportation to sustainable water management and biodiversity conservation.
When an SLL is the right answer
Choose an SLL when your ambition is enterprise-wide but you don't have a single discrete green project to finance. This is the typical case for:
- Manufacturers pursuing a multi-year decarbonisation plan.
- Retailers reducing supply-chain emissions.
- Logistics operators shifting modal mix and fleet composition.
- Any borrower with a science-based target and a broad transition programme.
Can you combine them?
Yes. Many facilities are structured as sustainability-linked green loans — proceeds are ring-fenced for eligible projects and pricing is linked to enterprise-wide KPIs. This is common in real estate and infrastructure.
Where borrowers get it wrong
Two frequent mistakes:
- Labelling a general-purpose loan as "green". If proceeds aren't ring-fenced and reported on a project basis, it isn't a Green Loan under the GLP — regardless of the borrower's sustainability credentials.
- Setting weak SPTs on an SLL. If the targets don't go beyond business-as-usual, the SPO will not confirm SLLP alignment, and the loan risks being flagged as greenwashing.
How to decide
Ask three questions:
- Do I have a discrete, eligible green project? → Green Loan.
- Do I want to align my whole company's financing cost with its transition performance? → SLL.
- Both? → Combined structure.
If you are unsure, our team can review your pipeline and recommend the right structure. Explore the Redigo Carbon platform or book a demo.
Frequently asked questions
Which is cheaper — a Green Loan or an SLL?+
Neither is systematically cheaper. Green Loans sometimes attract a small 'greenium' of 1–5 bps. SLLs offer downward margin adjustments (typically 2.5–7.5 bps per met SPT) but can also step up if targets are missed. Total cost depends on execution.
Can a Green Loan finance existing assets?+
Yes — refinancing of eligible green assets is permitted under the GLP, provided the project meets the eligibility criteria and the refinancing is disclosed.
Do both require a Second Party Opinion?+
SPOs are recommended by both the GLP and SLLP and are effectively standard market practice. Most banks will not disburse without one.
This article follows Redigo Carbon's editorial standards: factual claims reference recognised frameworks — GHG Protocol, CSRD, ESRS, the Sustainability-Linked Loan Principles, the Green Loan Principles — and Redigo's opinions are labelled as such.
What this article is based on.
- Regulation (EU) 2020/852 — EU Taxonomy Regulation — EUR-Lex
- European Commission — Overview of sustainable finance — European Commission
- Sustainability-Linked Loan Principles (LMA / APLMA / LSTA) — LMA / APLMA / LSTA
- GHG Protocol — Corporate Accounting and Reporting Standard — GHG Protocol
- SBTi — Corporate Net-Zero Standard — Science Based Targets initiative
- Green Loan Principles (LMA / APLMA / LSTA) — LMA / APLMA / LSTA
- IPMVP — International Performance Measurement and Verification Protocol — EVO
- PCAF — Global GHG Accounting and Reporting Standard for the Financial Industry — PCAF
- TCFD — Recommendations of the Task Force on Climate-related Financial Disclosures — TCFD / FSB
Redigo Carbon distinguishes between regulatory requirements, industry standards, best practice and Redigo's own recommendations. See our editorial standards for how we research, cite and update this content.
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