February 21, 2023 - On February 17th the LSTA published first of its kind drafting guidance for sustainability linked loans (SLLs). These two new documents – Drafting Guidance for Sustainability Linked Loans and Sustainability Structuring Agent Engagement Letter Inserts – serve as a useful drafting and educational resource for members. It is important to remember that SLLs have seen explosive growth in the last few years and market practice – like sustainability itself – is in a state of evolution. The pace of change together with the bespoke nature of SLLs means it is difficult to standardize provisions. Therefore, these documents do not seek to reflect or set a market standard. Instead, these documents are best seen as a window into current practice and a reflection of the thoughtful discussions of the ESG Committee.
- Drafting Guidance for SLLs: This document provides drafting examples of SLL-related provisions for a US-style credit agreement. The document includes many important footnotes offering context on the provisions. It also includes an annex with commentary and drafting guidance on “sleeping SLLs,” highlighting that these structures are not a standard market practice, but where they are included there are important considerations to be borne in mind.
- SSA Engagement Letter Inserts: The existence of a Sustainability Structuring Agent or Sustainability Coordinator (terms are interchangeable) has become a common feature of SLLs. While practice around how these parties are engaged may vary, this document offers provisions relating to the SSA role that can be included in a US-style engagement letter if one is executed. The provisions clearly describe the SSA role as one similar to a loan arranger with the SSA using commercially reasonable efforts to assist the borrower in its development and structuring of sustainability-linked loan features for inclusion in the relevant loan. The role described in these SSA Inserts ends once the loan is originated.
For more on the project, please see this video discussion with Robert Lewis, partner at Sidley, who served as the LSTA’s project counsel.
While these two documents are focused on U.S. practice given the difference in drafting styles across jurisdictions, the LSTA remains committed to working with our partners at the LMA and APLMA in supporting the responsible growth of sustainable lending. The trade associations will be publishing updated versions of the Principles and Guidance (see current versions below) this month.
Please see our entire Sustainable Lending Library.