Short Reads

Introduction of Sustainability Linked Loan Principles

Introduction of Sustainability Linked Loan Principles

Introduction of Sustainability Linked Loan Principles

13.06.2019 NL law

Sustainable finance and green lending is on the rise as more and more borrowers and lenders recognise the potential benefits of green and sustainability linked loan products for their business.

In another welcome addition to this fast-moving area of finance, the Loan Market Association (LMA), together with the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (SLTA), has introduced the Sustainability Linked Loan Principles (SLLP). This comes after the introduction of the Green Loan Principles (GLP) in March 2018 (see Stibbe's June 2018 short read).

Green loans are defined in the GLP as "any type of loan instrument made available exclusively to finance or re-finance, in whole or in part, new and/or existing eligible Green Projects." We mentioned in our June 2018 short read that as well as green loans that fall within the scope of the GLP, there are other types of financing also considered to be 'green loans'. It is for these types of loans, termed 'sustainability linked loans', that the SLLP have been developed.

According to the LMA, the sustainability linked loan product is a "dynamic and innovative product that enables lenders to incentivise improvements in the borrower's sustainability profile by aligning loan terms (for example, margins) to the borrower's performance against ambitious, pre-determined sustainability performance targets." Contrary to a green loan under the GLP, sustainability linked loan products can have different (non-green) purposes, for example the financing of general corporate purposes.

The SLLP consist of voluntary recommended guidelines providing a framework for sustainability linked loan products. The principles consist of four core components:

Relationship to Borrower's Overall Corporate Social Responsibility (CSR) Strategy

The borrower should inform its lenders of its sustainability objectives (as set out in its CSR strategy) and how these objectives align with the proposed Sustainability Performance Targets (SPTs, further explained below).

Target Setting – Measuring the Sustainability of the Borrower

The borrower (possibly with the assistance of a 'Sustainability Coordinator' or 'Sustainability Structuring Agent') and its lenders should agree the SPTs applicable to the specific transaction. The SPTs should be "ambitious and meaningful to the borrower's business". The key element of this principle (and the SLLP as a whole) is to incentivise the borrower to improve its sustainability profile over the life of the loan by linking the loan terms to the borrower's performance against the agreed pre-determined benchmarks. If the borrower meets a pre-determined SPT, the loan terms become more favourable, such as a decrease in interest margin.

Reporting

Transparency and openness are essential components of the sustainable loan market. The borrower should keep up to date information on their SPTs readily available, and provide reports to its lenders at least annually. The SLLP encourage the borrower to make this information publicly available, as well as information on underlying methodology and/or assumptions used.

Review

It is up to the borrower and its lenders to agree on a transaction-by-transaction basis whether an external independent review of the SPTs is required. Factors to consider when making this decision include (for example) (i) whether the borrower is listed, (ii) whether information on the borrower's SPTs is publicly available, and (iii) the presence of in-house expertise. If no external review takes place, the SLLP strongly recommend borrowers to demonstrate or develop internal expertise to validate its performance against the SPTs. For a publically listed borrower, it may be sufficient for lenders to rely on the borrower's ongoing disclosure requirements.

Appendix 1 to the SLLP contains a non-exhaustive, indicative list of common categories of SPTs (such as energy efficiency, renewable energy and water consumption), together with examples of improvements an SPT might aim to measure.

Both lenders and borrowers are increasingly aware of the pressure to consider the impact of their activities on the environment, and as a result parties are looking at ways to incorporate their CSR targets into their financing arrangements. The importance of green and sustainable development has not gone unnoticed by the regulators, with the European Commission recently highlighting once more the need to scale up sustainable finance globally, and announcing further initiatives in this area. There are indications that this may include beneficial capital treatment for sustainable loan products, which may further incentivise lenders to look for opportunities to participate in this growing market. We consider the introduction of the SLLP a significant development in the industry that will contribute to the consistency, integrity and transparency in sustainable finance.

The SLLP can be accessed at https://www.lma.eu.com/application/files/8015/5307/4231/LMA_Sustainability_Linked_Loan_Principles.pdf

Team

Related news

17.10.2019 NL law
Objective indicator high-risk third countries repealed as of 18 October 2019

Short Reads - The Implementation Decree for the Wwft 2018 has been amended. As a result, as of 18 October 2019 institutions subject to the Dutch Anti-Money Laundering and Anti-Terrorism Financing Act will no longer have to report transactions solely on the basis that this transaction relates to an individual residing, or a legal entity having its registered office in, a high-risk third country.

Read more

15.10.2019 BE law
Avis du Maître architecte et organisation d’une réunion de projet. De nouvelles étapes préalables à la demande de permis d’urbanisme.

Articles - Une des nouveautés de la réforme du CoBAT adoptée le 30 novembre 2017, publiée au Moniteur belge le 20 avril 2018 et entrée en vigueur le 1er septembre 2019 (pour ce qui concerne les demandes de permis d’urbanisme) porte sur la création de deux nouvelles étapes préalables à l’introduction d’une demande de permis d’urbanisme : l’obtention de l’avis du Maître architecte, d’une part, et l’organisation d’une réunion de projet, d’autre part. 

Read more

02.10.2019 NL law
Politie aansprakelijk voor schietpartij Alphen aan den Rijn

Short Reads - De politie is aansprakelijk voor de schietpartij in een winkelcentrum Alphen aan den Rijn in 2011. Dat oordeelt de Hoge Raad in zijn arrest van 20 september 2019 (ECLI:NL:HR:2019:1409). Bij deze schietpartij vonden zes mensen de dood en raakten zestien mensen gewond. De dader doodde ook zichzelf. Nabestaanden van dodelijke slachtoffers, slachtoffers die gewond raakten en winkeliers spreken de politie aan tot schadevergoeding. Zij voeren aan dat de politie de vergunning voor de wapens die de man gebruikte, niet had mogen verlenen.

Read more

Our website uses functional cookies for the functioning of the website and analytic cookies that enable us to generate aggregated visitor data. We also use other cookies, such as third party tracking cookies - please indicate whether you agree to the use of these other cookies:

Privacy – en cookieverklaring