Resilience Takes Flight at LMA’s 2025 Sustainable Finance Conference

Reframing the Narrative: From ESG Fatigue to Strategic Sustainability

The panel opened with a candid reflection on the current climate: sustainability is under pressure on both an internal and external level. Relationship managers advising clients to drop sustainability labels reflect a broader discomfort with ESG complexity and perceived reputational risk. Yet, Robert Spruijt’s1 call to “make sustainable finance great again”, though tongue-in-cheek, underscores a serious imperative: to evolve the market narrative from defensive labelling to strategic integration.

SLLs – Resilient Catalysts for Change

Kirill Lebedyanskiy2 noted that “Sustainability-Linked Loans remain powerful tools for embedding sustainability into financial conversations. Their decline in volume is not necessarily a negative signal. Rather, it reflects a maturing market where quality trumps quantity.”

Many borrowers have used SLLs to align internal departments and catalyse transformation. Once alignment is achieved, the instrument may no longer be needed, suggesting SLLs have served their purpose.

However, some companies are not yet ready or able to transition, due to factors such as loss-making investments, lack of grid connections, or broader economic headwinds. This should not be seen as failure but as a normal stage in a maturing market. During early growth, participation was widespread; over time, engagement naturally becomes more selective and strategic.

Banks therefore have a dual role: to continue integrating ESG metrics into financing, moving beyond simple KPIs, and to actively support clients who are not yet ready to transition. As Robert noted “the whole sustainable finance market has to evolve. We focus now mainly on KPI setting and on their ambition and materiality level. But, in the end, it is about the business plan of the client, the required investments and discussing with them how they will eventually meet the climate goals for 2040 and 2050.”

SLLs are particularly well-suited to undrawn revolving credit facilities (RCFs) and bilateral loans in the middle market, where alignment across fewer stakeholders enables more agile structuring. Private equity firms continue to use SLLs to demonstrate sustainability leadership to their LPs, reinforcing their role in value creation.

Complexity – A Solvable Issue

The market’s complexity and burdensome documentary processes are often cited as barriers to engagement with the SLL product. But as one panellist noted, “a room full of lawyers and bankers should be able to fix this”. Clarifying and streamlining the process for clients is critical, and the voluntary nature of the market means simplification is within reach. The focus must shift from labelling to substance, ensuring KPIs are material, SPTs are ambitious, and reporting is transparent.

Regulatory Uncertainty Is Stalling Progress

The panel expressed concern over the regulatory landscape, particularly the SFDR review and the EU’s anti-greenwashing directive. “What was meant to be a simplification exercise has unfortunately also created some confusion,” notes Kirill. Research shows3 that 60% of companies would prefer to stick to the original requirements for clarity and planning. Regulatory ambiguity undermines the credibility of sustainability-labelled products and makes it difficult for businesses to set ambitious KPIs and SPTs.

Geographic Divergence: Investment vs Disclosure

In 2024, APAC and the US were focused on investment, while Europe leaned heavily towards disclosure. This divergence creates mismatches in expectations and data availability. Banks are placed under pressure to disclose client risk profiles, but without consistent data from clients, this becomes challenging. The European Central Bank insists on disclosure, while the European Commission seeks to reduce client burden, highlighting a structural tension.

Market Evolution: Rational Sustainability and Strategic KPIs

The ESG backlash has prompted a return to fundamentals. The market is now asking for more ambitious KPIs, such as Scope 3 emissions, and more credible transition strategies. However, ambition is outpacing corporate capacity. As a result, the concept of “rational sustainability” is gaining traction, focusing on material impacts and strategic alignment rather than superficial labelling.

Call to Action: Innovation, Adaptation, and Momentum

The panel concluded with a clear message: continuing business as usual will lead to stagnation. To keep the sustainability train on track, the market must innovate, simplify, and focus on real risks and opportunities. SLLs, transition loans, and regulatory clarity are all tools that serve to make this evolution possible. But it is the collective will of market participants, banks, borrowers, and regulators, that will determine whether sustainability continues to flourish or falters. We need to continue to work together to scale up transition financing and ensure that every actor, regardless of maturity, can play a part in the journey.

The panel opened with a critical insight: the question of whether a transition label is needed to enhance the financing of the real economy transition is not binary. The real challenge lies instead in overcoming this binary mindset. In some contexts, a label can be an enabler, for example, in certain geographic or technological situations where it helps attract liquidity. But in other cases, such as for borrowers with proven, credible transition strategies, it may be redundant and existing instruments may suffice. As with many areas of sustainable finance, the need for a label depends on a range of factors, including sector, geography, market conditions, and borrower maturity.

“The conversation around transition loan labelling versus conventional labelling should not be framed as a binary choice. Instead, it requires a nuanced approach that recognises the spectrum of sustainability efforts and the diverse financing solutions needed to support the transition of the real economy,”

Marina Marecos, Head of Sustainability Strategy, EMEA – Mizuho Bank.

Banks are already highly regulated, and in many cases operate under frameworks which require transition plans to be in place, such as those of the ISSB. 2024 saw record investment in energy transition, but this was mostly concentrated in ‘safer’ areas of the economy, for which transitional technologies have been proven to function at scale, such as electrification and renewables, and where the green finance market is already well established. Hard-to-abate sectors remain underserved while GHG emissions reduction potential is gigantic. This is the space where transition labels and guidance can unlock capital and have the most impact.

Labels – Constructive Tools, Not Gatekeepers

From a verifier’s perspective, the label is nuanced and does not comprise a simple yes/no proposition. Credible transition strategies must be assessed on the basis of regional and sectoral benchmarks, considered within their respective contexts and recognising that not all borrowers are starting from the same point. Guidelines act as a north star, helping entities identify whether they have the assets and plans worth labelling. But to finance the whole economy, we must move beyond the label debate and focus on pragmatism.

Transition financing is already underway, without transition-related labels, but remain modest, when scenarios consistent with national or global emissions reduction targets suggest that USD 400-500 billion per year in transition finance could be mobilised over the next decade, equivalent to USD 4-5 trillion cumulatively. While attracting capital to green assets is relatively easy, innovative low carbon solutions found in coal and oil reliant emerging markets often struggle to attract capital. Green finance cannot deliver all aspects of energy system transformation, especially in hard-to-abate sectors and in EMDEs. Guidelines can help bankers structure and label transition loans, especially when combined with local taxonomies. Standardisation builds comfort and could possibly shift the data landscape in 2025.

Perfectionism vs Pragmatism in front of evolving needs

The panel warned against the creation of a system where only already Paris-aligned projects receive capital, excluding sectors or economies where emissions are hard to abate. Otherwise, financial institutions may wind up cutting their emissions on paper by reducing their exposure to emissions-intensive sectors and countries rather than reducing emissions in the real economy. Some projects may involve carbon lock-in, but with guardrails, transparency, and future plans, they can still contribute meaningfully to the transition. The goal is to measure impact, not just alignment. Making efforts to engage borrowers in its transition journey is preferable to outright divestment.

As Laurie Chesné4 put it, “transition finance is dynamic per nature, shaped by the diversity of national energy pathways, the fact that types of investments needed evolve over time and the necessity of considering the pace of transition and length of transformation.”

Labels can enhance transparency and accountability. They also serve as engagement tools, helping banks start meaningful conversations with clients. SLLs already play this role, and transition guidelines can complement this.

Sectoral Pathways and Ringfencing: A Pragmatic Approach

Banks are developing sectoral pathways to decarbonise clients operating in specific sectors. Ringfencing use of proceeds for specific activities allows more transparency than entity-level assessments. The challenge is finding the right balance between Paris alignment and practical progress. Guidance and external points of reference exist, but granularity takes time.

Beyond Labels: Structural Change in Banking

Irrespective of labels, banks finance the real economy as part of their business-as-usual. Most have net-zero targets and use their position as lenders to actively engage clients on sustainability. Companies with credible transition plans, especially in renewables, are already seeing increased liquidity. The shift is already in motion, but there is always more that can be done.

Call to Action: Governance, Engagement, and Policy Support

Successful transition finance requires a fundamental shift in how we think about the transition to net zero and the necessary financial services to deliver. Not every transaction needs to be categorically aligned with 1.5oC. What matters is transparency, governance, and the ability of front-office teams to engage clients meaningfully. Banks must start the conversation and the transition label is one of many available tools to enhance it.

A positive regulatory and policy environment is essential to creating an environment where transition finance can thrive. Most transition activity is happening where policy is supportive for the market. Certainty enables strategies to form and helps unlock capital.

A Tale of Many Parts

The transition is complex. It’s not just about alignment with standards - it’s about emissions reduction, capex, and credible roadmaps. Some projects will be imperfect. But with transparency, impact data, disclosure, and necessary safeguards, they can still play a role in driving progress.

The real economy transition is not a linear, straightforward story. It’s an evolving mosaic. And it’s time to finance it accordingly.