LMA looks to bolster integrity of the sustainability-linked loan product07 July 2022
The sustainability-linked loan (SLL) product is ideally placed to provide a meaningful contribution to financing the transition to net-zero. The SLL, with its flexible, cross-sector framework, has seen a meteoric rise in terms of loan volume and issuance over the past few years. As the success of the SLL continues to grow, it is more important than ever that the market remains vigilant against the erosion of the core components of the Sustainability-linked Loan Principles. The integrity of the SLL must be protected. To aid with this, the LMA has released a series of three articles, addressing issues regarding the setting of key performance indicators (KPIs) and sustainability performance targets (SPTs) as well as focusing on the issue of timing.
The first article, KPI Selection – A Matter of Materiality, sets out how parties can ensure that KPIs selected are able to withstand the scrutiny of the syndicate, and the wider market. The second article, Fear of Failure Frustrating Ambition, looks to address the hurdles that can prevent true ambition being reached when setting SPTs, and how these might be overcome. The final article, It's a Matter of Time, explores how the timeline for a transaction will inevitably be impacted when seeking to introduce a sustainability element to the deal.
Gemma Lawrence-Pardew, Director – Legal of the Loan Market Association states "The SLL is the perfect instrument to finance the transition to net zero. It is therefore vital that the integrity of this product be protected as the market continues to grow, with all parties to a transaction respecting and adhering to the core components of the Sustainability-linked Loan Principles. Serious consideration must always be given as to whether a SLL label can, and should, be awarded for any one transaction – for an award is what it ultimately is."
Hannah Vanstone, Senior Associate Director – Legal of the Loan Market Association states "The syndicated loan market undoubtedly has a significant role to play in supporting global sustainability goals, and the SLL product provides a valuable tool with which to assist borrowers along their sustainability journey. We hope these articles will help to raise awareness of the importance of protecting the core components of the SLL product, and will help to ensure that robust and ambitious standards are upheld throughout the market in order to maintain the integrity of the SLL product."