Paragon Banking Group has successfully issued £150m in Tier 2 Green Bonds, becoming the first UK bank to issue a subordinated instrument in the sustainable finance space.

The note was issued at a coupon of 4.375%, and the proceeds of the bond will be allocated to green loans.

The lender believes this will incentivise landlords to mitigate the impact of climate change, specifically green residential real estate loans in England and Wales with an EPC rating of “A” or “B”.

Housing is currently responsible for 22% of the UK’s greenhouse gas emissions.

Under recent government proposals, all property let to new tenancies must have an Energy Performance Certificate (EPC) rating of at least “C” by 1 April 2025.

This requirement will apply to the entire PRS by 2028.

The government has an overall target of making the UK’s housing stock carbon neutral by 2050.

The Green Bond Framework is line with the ICMA Green Bond Principles and has been validated by Sustainalytics, a leading ESG ratings provider.

Additionally, Paragon will publish an annual report detailing the allocation of the proceeds to the green loans and the associated carbon savings.

Nigel Terrington, chief executive of Paragon, said: “This Green Bond demonstrates our commitment to support more landlords improve the energy performance of their rental properties, reducing carbon emissions as well as energy bills for tenants.

“Under the government’s ambitious plans, 2.9 million rental homes will need to improve energy performance over the next few years.

“Government, landlords and lenders should work together to meet this target, and green finance will play a critical role.

“At Paragon, sustainability influences every aspect of our business.

“We’re delighted to have received overwhelming support from the investment community on our plans to put sustainable lending at the heart of our strategy.”