Curb “green laundering”: Loan Market Association tightens guidelines on sustainability lending

On May 27, 2021, the Loan Market Association released a significantly revised set of lending principles related to sustainability (the SLLP) and the associated guidelines. The SLLP replaces the original principles published in 2019 and the extent of the changes reflects the evolution of a widely adopted and popular product, as well as developments in other related markets (such as green loans and green bonds).

The popularity of sustainability loans (SLL) increased. According to data from Refinitiv, a LSEG company, global sustainable loans totaled US $ 113.6 billion in the first quarter of 2021, more than double the amounts for the equivalent period of last year and surpassing 100. billion US dollars for the first time in a quarter. SLLs represent the majority of this volume.

What are SLLs?

The SLLP defines SLL as “any type of loan instrument and / or conditional facility… which induces the borrower to achieve ambitious and predetermined sustainability performance goals. The borrower’s sustainability performance is measured using pre-defined sustainability performance targets, as measured by pre-defined key performance indicators (KPI), which may include or include external ratings and / or equivalent metrics, and which measure improvements in the borrower’s sustainability profile ”.

SLLPs are recommended voluntary guidelines to provide a framework for the SLL product and provide the basic characteristics of SLLs.

What changed ?

The main driver of the SLLP revisions appears to be to make the requirements more prescriptive and less ambitious. The flexibility and adaptability of SLLs have appealed to borrowers, but also risk being accused of “green-washing”. The SLLP seeks to maintain the integrity of the product (this is expressly stated as a goal in the guide).


  • More emphasis was placed on the selection of KPIs used to measure the sustainability performance of the borrower. These KPIs should be “important to the borrower’s core business strategy and sustainability, and address the relevant environmental, social and / or governance challenges of the industrial sector”. There is less emphasis on external ratings which reflect the stance we have seen borrowers take on transactions; bespoke KPIs that reflect the borrower’s existing strategy and objectives have been given priority over an external ESG rating which may not be as aligned with the borrower’s specific industry or activity.

Third party verification

  • There has also been an increase in the focus on third party involvement, both in setting sustainability performance goals for each relevant KPI and in confirming the alignment of the SLL with the SLLP (through ‘a possible opinion’ on the target levels) and the continuous verification of the borrower’s performance against the targets.
  • The previous principles stipulated that the need for an external review should be negotiated between the parties. On the other hand, the SLLP specifies that “borrowers must obtain an independent and external verification of the level of performance of the borrower … at least once a year”. Third party verification by a qualified external reviewer is now a requirement for a loan to be considered an SLL. This is unlikely to significantly change negotiations on new loans, as we have increasingly found that lenders are focusing on the need for auditors (or other external experts) to be involved in the loan process. declaration and verification.
  • It is also recommended that the verification of performance against targets be made public where appropriate (this is not limited to listed companies).


  • The list of example key performance indicators appended to the SLLP has been extended beyond the original environmental target areas. Separate social and governance categories and examples have been included. This reflects the wider market, including the new “social lending” product (for which new social lending principles were released in April).

Wider context

The SLLP further aligns the SLL requirements with the principles of the International Capital Markets Association (ICMA) Sustainability Obligations. This can in practice be useful for borrowers; we’ve seen a number of companies with both SLLs and obligations in place, so these products should be able to work in parallel if the requirements are consistent. Such consistency would also offer a greater option on refinancing.

Although the new SLLP has changed significantly from the original set of principles, the changes largely reflect the evolution of the product and the need to provide metrics and accountability to protect product integrity.

And after?

SLLs will only gain in popularity given the various regulatory and other factors impacting sustainable financing. Stricter SLLP guidelines will not deter this. The increased number of examples of key performance indicators should encourage further development in related target areas.

We are working on a number of SLLs and other sustainable finance products for clients across the debt spectrum and would be happy to advise you on the latest developments.

Priscilla C. Carnegie