Environmentally friendly infrastructure loans have lower default risk than non-green projects, according to a report published Tuesday from New York-based Moody’s Investors Service.
Project finance loans for green projects demonstrate a lower risk of default compared to loans for other kinds of projects, the report finds, particularly in advanced economies.
Specifically, it finds a 10-year cumulative default rate of 5.7% for green projects and 8.5% for non-green projects.
“Our analysis of thousands of project finance bank loans examined various industry sectors that align with our definition of infrastructure. We further split the data into green and non-green projects and found significant distinctions related to default and recovery rates,” says Kathrin Heitmann, vice president and senior analyst at Moody’s, in a statement.
The research categorized the projects within the study based on criteria established under the Green Bond Principles published by the International Capital Markets Association, which defines projects as green when they involve renewable energy, energy efficiency, pollution prevention, clean transportation, climate change adaptation and environmental conservation.