Sustainability-linked loans
Produced in partnership with Mindy Hauman and Alec Buchanan of White & Case
Sustainability-linked loans

The following Banking & Finance guidance note Produced in partnership with Mindy Hauman and Alec Buchanan of White & Case provides comprehensive and up to date legal information covering:

  • Sustainability-linked loans
  • What are sustainability-linked loans?
  • Characteristics of SLLs
  • Sustainability-linked loan or green loan?
  • What’s next?

Following the first Green Loan Principles and in light of the increasing popularity and borrower diversity in the green loan market, the first ever Sustainability-Linked Loan Principles (SLLP) were jointly published by the Loan Market Association, the New York-based Loan Syndications and Trading Association and the Asia Pacific Loan Market Association. This Practice Note considers the sustainability linked loan market, focusing on the SLLP.

What are sustainability-linked loans?

Sustainability-linked loans (SLLs) are separate to ‘use of proceeds’ green loans (GLs), which are guided by the Green Loan Principles. SLLs present an alternative format of green or sustainable loan whereby the interest rate of the loan can be stepped up or stepped down according to the borrower’s change in sustainability rating over the time period of the loan.

The publication of the SLLPs marks the first time a set of sustainable finance principles from an industry body have deviated from the ‘use of proceeds’ model. Unlike conventional green ‘use of proceeds’ loans which are based around the sustainable use of the loan monies themselves, SLLs are tied to the overall sustainability profile of the borrower, and provide a financial incentive to improve this overall sustainability profile. For information on GLs and green bonds, which are based on the ‘use of proceeds’ model, see Practice Notes: Green loans and Green bonds.

Loans with interest