Guidelines for Sustainability-Linked Loans Financing Bond

Gemma Lawrence-Pardew, Head of Sustainability, Loan Market Association

Financial institutions, in particular lending banks, hold an influential position at the interface between financial markets and the real economy, engaging directly with borrowers through the provision of credit products.

There is an opportunity for lending banks to use this position of influence to engage borrowers in dialogue regarding their sustainability performance through instruments such as the sustainability-linked loan (SLL).

We were therefore delighted to partner with the International Capital Markets Association on a project that seeks to improve the robustness of, and open up another stream of liquidity for, the SLL market. And so were born the Guidelines for Sustainability-Linked Loans financing Bonds (SLLBG)1.

Set out below is a brief overview of the new SLLBG.

1. https://www.lma.eu.com/download?p=626233701-66057

Definition

Sustainability-linked loans financing bonds (SLLB) are any type of bond instrument (i) where the proceeds or an equivalent amount will be exclusively applied to finance or re-finance, in part or in full, a portfolio of new and/or existing eligible SLLs aligned with the Sustainability-Linked Loan Principles and (ii) which are aligned with the four components further detailed below in these SLLBG, directly inspired by the Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines.

Core Components

The four core components for alignment with the SLLBG are similar to the Green Bond Principles and Social Bond Principles:

  1. Use of Proceeds
  2. Process for SLL Evaluation and Selection
  3. Management of Proceeds
  4. Reporting

The key recommendations for heightened transparency are:

  • SLLB Frameworks
  • External Review

Issuers are also encouraged to provide information on their overarching entity-level objectives, strategy, policy and/or processes relating to environmental and/or social sustainability.

Looking Ahead

It is anticipated that any development of a market for SLLB will clearly reflect the evolution and issuance trends in the SLL market overall.

Work will now begin on a FAQ document to support the SLLBG so to the extent our readership have any questions they would like clarified, I would encourage you to contact me as soon as possible.