With an intense focus on sustainability by governments, companies, investors and financial intermediaries, environmental, social and governance (“ESG”) principles are more important than ever. The explosion of net-zero emissions commitments from companies and countries in an effort to slow global warming under the Paris Agreement are being met by a rapid rise in sustainable debt financings from US$160 billion in 2019 to US$750 billion in 2020 to over US$2 trillion in the first five months of 2021 alone, according to Bloomberg.¹  Lenders are working with domestic and multinational borrowers in industries as diverse as water, aviation, and food and beverages to incorporate innovative debt financing terms. This article will provide an overview of the principle guidance approved by loan market associations and will discuss some of the mechanisms for using credit pricing to incentivize sustainable behavior.

Sustainable Lending Guidance Overview

The Sustainability Linked Loan Principles and Guidance Notes (“SLLPs”) that were jointly published by the Loan Market Association, Asia Pacific Loan Market Association and the Loan Syndications and Trading Association in 2019 and updated in May 2021 are shaping deal structures and documentation around the world. There are two methods through which a company may tap into the “green” loan market. One method is a green loan (a “GL”), which is a type of loan instrument made available to finance a green project in categories including renewable energy, energy efficiency, pollution prevention and control, climate change adaptation, green buildings, and other related categories. 

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