May 5, 2020 - Today the LSTA, together with the APLMA and LMA, have published the latest additions to our sustainable finance library – Guidance on Green Loan Principles and Guidance on Sustainability Linked Loan Principles as well as refreshed versions of the Green Loan Principles (GLP) and Sustainability Linked Loan Principles (SLLP). The documents were developed in collaboration with the LSTA’s Sustainable Finance Working Group and the respective working groups of the APLMA and LMA. A joint trade association press release is available here.
The Guidance Documents
As a reminder, green and sustainability linked loans were first introduced in the U.S. in 2018 and 2019, respectively. In recognition of the emergence of these new green and sustainability-linked loans – and to further support the growth of these loans – the LSTA, together with the APLMA and LMA, published frameworks categorizing “green loans” and “sustainability linked loans”. Last year Refinitiv LPC recorded nearly $167 billion in global green loan and sustainability linked loan volume. While the upward growth has certainly dampened due to the COVID-19 disruption, global green and sustainability linked loan volume recorded in 1Q20 was still 22% higher than 1Q19.
The guidance documents published today are intended to be read alongside the GLP and SLLP and offer clarification on the practical application of the GLP and SLLP. As the GLP and SLLP are high-level frameworks designed to offer recognizable, core components of each type of loan, they were intentionally drafted to preserve the integrity of these emerging loans while not being overly prescriptive which could stifle innovation. With respect to green loans (i.e. loans where the proceeds are used to finance/refinance eligible green projects), the guidance offers clarification on tracking of proceeds and reporting. With respect to sustainability linked loans (i.e. loans which economically incentivize the borrower, typically through a margin ratchet, to achieve ambitious, predetermined sustainability performance targets (SPTs)), the guidance focuses on target setting – ensuring that the metrics and targets selected for use in the loan are meaningful and ambitious.
The guidance documents offer substantive, practical detail and we hope the further information proves helpful to market participants. Like the GLP and SLLP, the trade associations will monitor usage of and market feedback on these guidance documents and will review them regularly to ensure they appropriately reflect current market practices.
The guidance documents are published alongside refreshed versions of the GLP and SLLP. There have not been any substantive changes to either framework but, as part of our regular review of these frameworks, we are publishing May 2020 versions. Please contact Tess Virmani with any questions. For more information, you can click here for a short video podcast and here for an article on sustainability linked loans