In 2019, sustainable finance became widespread. Through publication by the Loan Syndications and Trading Association (LSTA), the Loan Market Association (LMA) and the Asia Pacific Loan Market Association (APLMA) Principles of green loan (BPL) initially adopted in 2018 and from Principles of sustainability loans (SLLP) adopted in 2019 and increased demand from market players, Green Loans and Sustainability Linked Lending (SLL) accounted for a large part of the strong growth in sustainable finance. For a reminder on GLP and SLLP, see our May 2018 Blakes Bulletin: Canadian investors take note: budding green loan market set to accelerate in 2018 and April 2019 Blakes Bulletin: The Loan Market Focuses on Sustainability Lending.

On May 5, 2020, the LSTA, LMA and APLMA jointly published guidance documents for each of the GLP and SLLP (Guidance Documents), with a view to providing market practitioners with practical considerations for structuring, documentation and monitoring of green loans and SLL transactions. In addition, the guidance documents are intended to complement the May 2020 ‘updated’ version of GLP and SLLP by promoting a harmonized approach in the use of these products, clarifying the differences between them and maintaining their integrity for avoid “greenwashing” and “sustainability washing” concerns. We have highlighted some of the key notes from the guidance documents below. However, it should be emphasized that the guidance documents also provide practical considerations for the basic components of each product (including, for green loans, the use of funds and project appraisal; and for SLLS, integration with the borrower’s overall sustainability strategy and goals, goal setting and reporting metrics and frequencies, and recommendations for external review.


The guidance documents reiterate some of the benefits for borrowers and lenders of taking out green loans and SLLs in the context of The Paris Agreement and the United Nations’ Sustainable development goals (ODD). For borrowers, benefits include a positive impact on the environment, climate change mitigation and / or adaptation, a positive impact on reputation and credibility, building stronger values-based relationships with stakeholders and access to new markets, providing greater resilience to markets disruption caused by climate change and reduced risk in portfolios. For lenders, the benefits are reflected in the integration of environmental, social and governance (ESG) performance into the credit rating of borrowers, showing their commitment to achieving sustainability goals with correlated economic impact and promoting greater sustainability. long-term sustainable growth and profitability.


The guidance documents describe the main differences between green loans and SLLs. While the fundamental determinant of a green loan is the use of the loan proceeds for green projects, the use of the proceeds is not a key determinant for SLLs. The main objective of SLLs is to encourage the borrower’s efforts to improve their sustainability benchmarks, by aligning the loan terms with the borrower’s performance against sustainability performance targets (SPT) mutually agreed upon predetermined, material and ambitious.


Guidance documents provide guidance on practical ways to avoid greenwashing or sustainability washing, which could undermine product integrity and affect the confidence of market participants. Both greenwashing and greenwashing are described as a project presented as having green or sustainable profiles, but where such claims are in fact exaggerated, inaccurate or misleading.

According to the guidance documents, in the context of green lending, by adhering tightly to all essential components to be as open and transparent as possible and using external review, the market can take steps to avoid any allegation of greenwashing. If a project no longer constitutes an eligible project, a mechanism can be provided to exclude this project.

Regarding SLLs, guidance documents suggest that the sustainability washout can occur when a project’s SPTs only superficially target a sustainable initiative and lack meaningful goals. Inaccurate tracking, measurement and disclosure of a borrower’s SPTs can also be a form of sustainability washing. Avoiding such scenarios can be achieved by adhering tightly to the core components of SLLPs that have been specifically drafted to provide a clear framework for maintaining the integrity of SLLs and seeking external scrutiny to ensure relevance of SPTs and transparency of data. .


There is currently no formulation model available for use in green loans or SLL literature, given the varied nature of this market. A case-by-case approach is necessary, but below are some practical considerations highlighted by the LSTA, LMA and APLMA to keep in mind when drafting the documents.

For green loans, the loan agreement must include the following main elements: (i) provisions relating to the purpose and use of funds clearly stating the categories of eligible green projects, (ii) commitments or commitments clearly identifiable information from the borrower regarding compliance information of the green project (s); and (iii) the borrower’s representations as to the accuracy of any report. On a case-by-case basis, lenders and borrowers can determine the consequences of violating product use provisions, including whether the loan would no longer be considered a green loan or, in some cases, actually triggering an event of default.

For SLLs, the most important thing to find in a loan agreement is the determination of the SPTs. The relevant provisions will deal specifically with the determination of objectives at the start of the transaction, how they will be evaluated and the reporting obligations to lenders, including the sources of information to determine their evaluations, whether based on information provided by the borrower, publicly available information or information provided and verified by a third party. The guidance documents note that for longer-term transactions, the loan agreement may include provisions for a SPT adjustment mechanism that may be applicable during the life of a loan in the event of a change in activity. borrower’s sustainability commitment, as well as extraordinary / extreme events or drastic changes in the regulatory environment. On a case-by-case basis, lenders and borrowers can determine the consequences of the borrower’s failure to comply with the SPTs set out in the loan agreement, including the economic impact which may consist of a margin premium or, in some cases, actually triggering a fault event.

We will continue to keep you updated on the evolution of green loans and SLLs in the international and domestic lending markets.

Leave a Reply

Your email address will not be published.