The sustainable loans market has entered an era of maturity and is ready for the next wave of innovation, according to Marco DeBenedictis, head of sustainable finance at Barclays Corporate Banking.
Environmental Finance: How would you describe the current state of the sustainable loans market and the key trends shaping its growth?
Marco DeBenedictis: We're on the cusp of an exciting phase for the market. The critical foundations have been established, which means there is now a robust platform from which the market can build and innovate. This stability is reflected in the consistent volumes we've seen across the major geographies over the past two to three years. While there are different push and pull factors, if we look at loan volumes for the first half of the year, DealLogic data for EMEA shows that over a quarter – 26% – of all loans were either sustainable or green. Globally, this figure is smaller – around 12-14%.
As in any product development or business life cycle, the strive for scale and reaching stability can often signal a need for innovation to drive fresh growth. The sustainable finance market at large is evolving at pace; boundaries are shifting, and what was once considered sustainable is increasingly starting to evolve to include the concept of transition finance in addition to sustainable finance. This nexus is where we're seeing innovation take shape.
EF: How is this impacting banks and their lending clients?
MD: Sustainability strategies and frameworks within financial institutions across the market are evolving. Financial institutions are looking at how these evolutions align to their strengths and where they see opportunity. This, in turn, is driving product and policy innovation across the market and is extending beyond lending and into the wider capital markets, including trade finance, working capital, and liquidity products. Clients increasingly want green or sustainable variants across their financing and banking toolkit.
At the same time, many corporates are revisiting their balance sheets, looking at profitability, and cash flows. As they consider their future sources of revenues, they need to factor the transition into their business and operating models. Banks across the value chain are accordingly adapting and developing products to support this shift – and this is the right time to do so.
EF: How are evolving regulatory frameworks shaping your sustainable loan practices and those of your clients?
MD: The FCA's recent 'two years on' letter is a welcome and important marker. It signals how the sustainability-linked loan market has matured; with better practices and more robust product structures. At Barclays, we aim to reflect this progress, incorporating best practices and maintaining an open dialogue with regulators, particularly around transparency, disclosure, and future market direction. We recognise market practices will need to continue to evolve.
More broadly, disclosure practices are improving significantly. Clients are more accustomed to reporting, and sustainability and finance teams within corporates are collaborating more closely. The market as a whole is further along the learning curve.
For us, the first priority is trust. We work closely with trade bodies – including the Loan Market Association (LMA), Loan Syndications and Trading Association (LSTA), and Asia Pacific Loan Market Association (APLMA) – as well as other bank working groups to align on principles and develop consistent frameworks. By participating actively in these fora, we're able to help the market deliver products aligned to a set of industry principles. This collaboration, through appropriate channels, is fundamental to driving the market forward in an efficient and effective way.
EF: The LMA is currently working on its guidance for a transition loan label. What role do you see transition loans playing in financing the low-carbon economy?
MD: Transition finance is essential for a low-carbon economy, and a key part of market development is about adopting the right standards. However, there is always a balance between innovation, standards, and regulation. Banks and corporates innovate, and regulators and industry bodies codify best practice, which then aids further innovation. And so the cycle continues.
We are currently in that cycle.
Clarity and transparency are paramount. At Barclays, our Sustainable and Transition Finance Frameworks provide exactly that – clearly defining eligibility criteria across both sector-specific initiatives and cross-sector activities.
Such transparency and disclosure are vital to the idea of a transition label, and we recognise the important role banks can play in accelerating progress in this space by working with clients and understanding their transition journeys, while ensuring integrity in how transition finance is deployed.
EF: What might a transition loan look like in practice?
In practice, most large corporates prefer general-purpose corporate financing. They won't issue a bond for a small capex project, so the revolving credit facility becomes the practical tool. The question, therefore, is how, as a market, we can work on how transition is applied in general corporate purpose financing. Very positively, we are starting to see this entity-specific transition finance focus emerge through the UK Transition Finance Council guideline proposals.
Transition use-of-proceeds products is something several banks have looked at, including ourselves. However, broad support and market consensus on how to build trust when it comes to designing the financial incentives for net-zero pathways is needed to accelerate this offering.
Currently, there aren't a lot of drawdowns in sustainability-linked revolving credit facilities for FTSE 100 companies. The challenge is to ensure market usability and low friction for corporates and banks whilst still maintaining robust governance. Some debate also remains about how transition loans overlap with sustainability-linked loans or bonds. In many cases, transition loans share characteristics with those products, andsome institutions may not distinguish between the two.
EF: Is there a need for a transition loan label then – especially given there hasn't been widespread adoption of the label in the bonds space?
MD: Innovation in new products and labels is something I believe in. But the key point is this: we want the transition to a low-carbon economy to be easier to achieve. We should be helping the market settle on industry principles and guidance that make it easier to recognise the transition activities against clear industry-aligned parameters in whatever way we can to avoid sacrificing market integrity. We have always tried to support our clients with behavioural financing, however labelled use-of-proceeds loans are not used at scale that much outside of the bond market and project finance.
Hard-to-abate sectors may benefit from the introduction of a transition label, as it would foster greater consistency and understanding across the market. For this to be effective, however, broad market consensus and adoption are essential. The work currently being undertaken by the LMA on transition finance guidance is a constructive step in that direction.
EF: What common challenges do clients face when pursuing sustainable loan options, and how does Barclays support them?
MD: Three challenges stand out. First, mitigating greenwashing risk – clients are very conscious of stakeholder scrutiny and the need for credibility. Second, managing verification and reporting requirements, which can add costs that offset financial benefits. Third, knowing where to start with understanding aspects like Scope 1, 2, and 3 emissions, especially for clients that are at the earlier stages of their sustainable finance journey.
We align with recognised principles such as the LMA's Sustainability-Linked Loan Principles and Green Loan Principles, encouraging external verification where appropriate, and helping clients leverage existing reporting obligations for efficiency. The aim is to reduce friction and build trust in the process.
EF: Can you share examples of innovative structures or features you've been working on at Barclays?
MD: We're doing some really exciting work in the blended finance space, where government guarantees or development bank participation can help to derisk projects and crowd in private capital. One example is the social housing retrofit loan we launched with support from the UK's National Wealth Fund, which provides a 70% guarantee. This blended finance structure enables social housing operators to access capital more affordably, demonstrating how public-private partnerships can unlock additionality.
We're also seeing sustainability-linked loans include new metrics such as embodied carbon and biodiversity net gain. On the small to medium-sized enterprise (SME) side, innovation focuses on lowering transaction costs and integrating sustainability into supply chains, since SMEs are often suppliers to larger corporates with sustainability targets. Trade finance linked to underlying green goods or services is also expanding.
EF: Some suggest growth in sustainable bonds and loans may be slowing due to market headwinds. Do you still see this market as a significant commercial opportunity?
MD: The market is in a period of reflection. While some institutions have scaled back investment, others are doubling For those willing to lead, the opportunity is significant. Our commitment in this area is becoming a differentiating factor. Even if the overall market were to remain stable in terms of growth, particularly in the loans space, sustainability leaders will continue to innovate around transition finance, new technologies, and become role models in the product innovation cycle.
We are not in a final state; rather, where we stand now is at a halfway point. We believe sustainable finance represents a significant commercial opportunity – but it doesn't come without complexity. That's why trust and transparency are our top priorities.
Internally, we established a risk-based loan governance framework in 2020, which we continue to update in line with regulatory developments. Externally, we actively pursue roles as sustainability coordinator: an important role in ensuring integrity and alignment with market standards.
EF: Looking ahead, how do you expect the sustainable loans market to evolve?
MD: The market is evolving positively, and it's an exciting place to be. Several things need to develop further:
- Consensus on transition loans: There needs to be clearer definitions from industry bodies, from regulators to trade associations, on what qualifies as transition financing across sectors and technologies. This will also support competitiveness across markets.
- Pure play and 'transition enablers' financing: Better frameworks and access to capital for climate tech and other companies whose business models are inherently sustainable or supporting the transition, even if their financing isn't labelled as such.
- Support for SMEs: Lowering barriers and providing accessible sustainability-linked financing for smaller businesses.
- Blended finance and guarantee structures: Greater use of public-private partnerships to derisk investments, particularly in emerging markets where infrastructure is the focus.
For more information, see: home.barclays/sustainability/esg- resource-hub/our-approach-to-sustainable-finance/
