Climate Contract Playbook Edition 3
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2. Environmental Representations (Clause 25.35): If there is commercial appetite for the outlined general environmental representations to be incorporated and whether any breach of these should trigger a default, an event of default, an acceleration or a declassification. These have been included so that this Green Loan “Starter Pack” can provide as much insight as possible into the area of “green” and “sustainable” finance for borrowers. Please note that such environmental representations do not illustrate a settled market position and should be negotiated on a case-by-case basis accordingly; 3. Certification (Clause 26.8) and Second Party Opinion : What will qualify the borrower’s “green” use of proceeds and the Eligible Green Project as suitable for a sector-specific Certification (as defined below) (as distinct from any statements that the underlying loan complies with the core components of the Green Loan Principles) by an accredited certification provider. Similarly, what will meet the requirements of procuring a Second Party Opinion (as defined below) from an external reviewer in relation to the borrower’s alignment with core tenants of the Green Loan Principles will vary. Further, we note that the requirements of the delivery of a Certification and a Second Party Opinion are not yet settled market positions and note that these requirements will require further expenses for the borrower. For purposes of this Green Loan “Starter Pack” we have assumed that obtaining a Certification and Second Party Opinion will be possible (both by reference to the Green Loan Framework and practically in order to satisfy the relevant condition precedent to utilisation) and commercially desirable for both the borrower and the credit providers; and 4. Declassification and Events of Default (Clause 29.22 to Clause 29.25): What will constitute a “green” breach and whether such breach will trigger a default, event of default, acceleration or merely a declassification of the loan as a “green loan.” For purposes of this Green Loan “Starter Pack” we have included, in brackets, provisions relating to declassifications and events of default to encourage the parties to discuss these topics early in any process as it is important that these provisions are tailored and negotiated on a case-by-case basis. It should be emphasized that the consequences of a breach of Clause 3.1, relating to the “green” use of proceeds, will be a key commercial point for the lenders as this is a material determining factor in a green loan and without adequate protections the possibility of “green washing” will be prevalent. Conversely, parties should be alive to the argument that a declassification event, as a result of a technical breach of the Green Loan Framework, should not serve to end an otherwise commercially viable project and accordingly other remedies, short of a declared default, may be appropriate. Possible Future Developments Further iterations of the Green Loan “Starter Pack” could include: • changes of pricing mechanics (e.g. margin increases) for the occurrence of defaults or events of default; • carbon offsetting or sequestration remedies or “cures”; and/or • a pre-populated list of alternatives for Schedule A to inspire the parties to think creatively in relation to the types of assets that capital can be allocated to and the methods of sustainably developing such assets. The drafting can be also tailored by the parties specifically to address specific net zero ambitions.
Notes for users continued
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