The overall objective of a sustainability-related loan is to encourage borrowers to improve their ESG or sustainability performance by providing them with financial rewards for achieving relevant goals. As with BPLs, the LMA, APLMA and LSTA have jointly issued guidance to provide more clarity on SLLP4 and have recently issued guidance specifically targeting real estate financing and leveraged finance transactions. “ESG factors are at the heart of our business and we are pleased to announce the strengthening of our capital structure with our first sustainability credit facility,” said Allan Dicks, Chief Financial Officer of Montrose Environment Group. “This new debt structure is directly in line with our commitment to sustainability and innovation, while helping us secure attractive financing costs and significantly increase our debt capacity. We thank our new and existing lenders for their continued support and confidence in our state-of-the-art environmental solutions. In addition, the closing of the new credit facility will allow Montrose to adjust its prices by up to five basis points based on its performance against certain sustainability and ESG objectives under the agreement. The agreement sets benchmarks in four key areas, the first of which is the company`s diversity and inclusion goals. The other three benchmarks are directly related to the company`s environmental focus on customers, including the liters of water treated for PFAS, the amount of methane leaks detected, and the amount of carbon-intensive energy (BIOGAS MMBtu) generated from waste. Sustainability and ESG performance are measured and reported in the company`s annual sustainability report. [Include representatives and guarantees related to sustainability – e.B correct form of TPS report, etc.] Given the rapid increase in the volume of SLLs and the rapid evolution of the integration of ESG principles into transaction documentation, APLMA, LMA and LSTA have updated the SLLPs to reflect emerging market trends. This update, which also aligns the SPLPs with ICMA`s sustainability bond principles, was published on 27 May 2021.
SLLPs were originally published in 2019 with the aim of promoting and preserving the development and integrity of sustainability-related credit products by providing a (voluntary) framework. The most significant change was to streamline the process for selecting key performance indicators (“KPIs”) and introduce mandatory third-party verification. This was deemed necessary in part because of the perceived potential for “greenwashing” and reputational risks for lenders and borrowers participating in LLs where objectives were too easily achievable. (Greenwashing is the practice where either a company overvalues its ecological credentials to obtain better conditions, or when claims about ESG performance do not correspond to reality.) Sustainability objectives are the sustainability objectives set out in the Sustainable Development Strategy, including, but not limited to, the net zero emissions target, the achievement and maintenance of a negative net state, the intermediate short-, medium- and long-term targets for the borrower`s greenhouse gas emissions, that are aligned with the objectives of the Paris Agreement, the offsetting strategy and measures to achieve the net-zero emissions target in a way that protects nature and promotes a just and fair transition to a low-carbon economy. (c) Each certificate of sustainability compliance [(and the evidence supporting it] shall be [made available to the public] [within  months of its submission to the Sustainable Development Coordinator […]] on the borrower`s sustainable development website and referenced in the borrower`s [annual sustainability report]. Since many companies regularly publish formal sustainability reports, many companies and lenders are also looking for ways to improve their financial position and reputation with investors and clients by leveraging the current focus on ESG factors. Even though economies around the world are currently focusing on the consequences of Covid-19, ESG criteria remain at the centre of concerns. Indeed, it is widely accepted that the pandemic underscores the need for a profound rethinking of the values and broader purpose of the economy and finance. When determining a borrower`s score, ESG rating agencies typically conduct an annual assessment of their performance against a number of ESG factors (sometimes up to 200) that are verified and normalized based on the industry in which they operate. As part of the assessment process, the ESG rating officer generally collects publicly available ESG information, as disclosed in the borrower`s social responsibility or sustainability reports, as well as anything the company publishes on its website and any relevant information from other public sources. The ESG rating agent may also contact the company directly to request information. Once the ESG assessment report is prepared, some ESG rating agencies give the borrower the opportunity to review, verify and comment on the ESG score and provide additional data before the final report is published.
As a prerequisite for initial use, the installation agreement may require the provision of one of the following third-party reports: sustainability provider`s due diligence report, sustainability strategy, ESG rating report confirming the esg base rating, or a sustainability auditor`s opinion on the suitability of KPIs and test methods. The ESG credit market received a new impetus with the release of the more flexible SLLP in 20193, outlining the expected framework within which companies can raise ESG-related financing without having to fund a specific “green” project. An increasingly common feature of LLS is the requirement that margin savings must be either partially (e.B.e. 50%), or entirely donated to charity or reinvested in sustainable initiatives. .