Following on from the successful adoption of the Green Loan Principles, the Loan Market Association (“LMA”) and other international syndicated lending organisations (Asia Pacific Loan Market Association and the Loan Syndicated and Trading Association) have published the new Sustainability Linked Loan Principles (“SLL Principles”). The stated goal of the SLL Principles is to promote the development and preserve the integrity of the sustainability linked loan product by providing guidelines which capture the fundamental characteristics of these loans.

Sustainability Linked Loans

Sustainability linked loans (“SL Loans”) are any types of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) that incentivise a borrower’s achievement of ambitious, predetermined sustainability performance objectives. This performance is measured using sustainability performance targets (“SPTs”) which include key performance indicators, external ratings and/or equivalent metrics and which measure improvements in the borrower’s sustainability profile. Common categories of SPTs listed in the SLL Principles include:

  • energy efficiency (eg improvements in the energy efficiency rating of buildings and/or machinery owned or leased by the borrower);
  • greenhouse gas emissions (eg reductions in greenhouse gas emissions in relation to products manufactured or sold by the borrower or to the production or manufacturing cycle);
  • renewable energy (eg increases in the amount of renewable energy generated or used by the borrower); and
  • water savings (eg water savings made by the borrower).

Unlike “green loans” issued in accordance with the Green Loan Principles, the use of proceeds in relation to a sustainability linked loan is not a determinant in its categorisation. In most cases, SL Loans will be used for general corporate purposes. Instead of determining specific uses of proceeds, SL Loans look to improve the borrower’s sustainability profile by aligning loan terms to the borrower’s performance against the relevant predetermined SPTs. For example performance versus SPTs may result in increases or decreases to the interest rate payable on the relevant loan which incentivises the relevant borrower to make improvements to their sustainability profile over the term of that loan.

What are the SLL Principles?

The SLL Principles set out a framework which is based around the following four core components:

  1. Relationship to Borrower’s Overall CSR Strategy: The borrower of an SL Loan should clearly communicate to its lenders its sustainability objectives, as set out in its corporate social responsibility (“CSR”) strategy, and how these align with its proposed SPTs. Borrowers are also encouraged to disclose any sustainability standards or certifications to which they are seeking to conform.
  2. Target Setting – Measuring the Sustainability of the Borrower: The borrower and lender should negotiate and set appropriate SPTs for each transaction. The borrower’s SPTs should be both ambitious and meaningful to their business as well as being tied to a sustainability improvement measurable against a predetermined benchmark. SPTs should be based on recent performance levels. Borrowers may be encouraged to seek a third party opinion as to the appropriateness of their SPTs as a condition precedent to the SL Loan being made available. If no third party opinion is sought, the borrower should demonstrate or develop the internal expertise to verify its methodologies. The SPTs should be meaningful and apply over the life of the loan.
  3. Reporting: Borrowers should, where possible, make and keep readily up to date information relating to SPTs and provide this information to institutions participating in the loan at least once a year. Borrowers should be encouraged to publicly report information on SPTs and this information will often be included in its annual or CSR reports. Where appropriate, the borrower may choose not to make the information public and instead share it privately with the lenders. Details of underlying methodology and/or assumptions should also be provided.
  4. Review: The need for external reviews is to be negotiated and agreed between the borrower and lenders on a transaction-by-transaction basis. If information relating to SPTs is not made publicly available or otherwise accompanied by an audit/assurance statement, it is strongly recommended that the borrower should seek an external review of its performance against its SPTs. In the case of publicly traded companies, while lenders may rely on the borrower’s public disclosures to verify its performance against its SPTs, an independent external review may still be desirable for certain SPTs. In transactions where a borrower seeks independent verification, the borrower should have its performance against its SPTs independently verified by a qualified external reviewer, such as an auditor, environmental consultant and/ or independent ratings agency, at least once a year. Furthermore, it is also recommended that external reviews be made publicly available where appropriate. In cases where no external review is sought, it is strongly recommended that the borrower demonstrates or develops the internal expertise to validate the calculation of its performance against its SPTs. Once reporting has been completed and external review (if any) has taken place, the lenders will evaluate the borrower’s performance against the SPTs based on the information provided.


Sustainable lending is a rapidly growing sector. Reports estimate that in 2018, SL Loans issued globally topped USD$36 billion. Publication of the SLL Principles is a welcome development for both borrowers and lenders who wish to have improved sustainability credentials and more choice regarding sustainable lending options. Adoption of the SLL Principles by the major industry bodies provides a framework of market standards with a view to maintaining the integrity of SL Loans and promoting development of the loan product.