Climate Contract Playbook Edition 3
126
[Casper’s clause] NEW
The Origin Story
Child’s name
Casper’s clause
Full name
Sustainability-Linked Loans
Practice Area / Sector
Finance, financial services & capital markets
To support the UK’s target for net zero emissions by 2050 and the environmental, social and governance (“ESG”) goals of business, sustainability-linked principles (“SLPs”) will need to be incorporated into lending products as a whole, not just purely into green projects. At present, there are no model clauses to incorporate SLPs into traditional finance documentation, standard terms and conditions and finance products. Drafting model clauses, as a set of optional riders divided into product categories and ESG goals, to incorporate SLPs into traditional financing documents, standard T&Cs and finance products. These can be stored centrally by industry bodies (e.g. the LMA/ICMA) and developed periodically along with changing ESG policies. Part of the UK’s Green Finance Strategy is to transform financial services, ‘moving beyond just funding green projects to ensuring climate and environmental factors are fully integrated into mainstream financial decision making across all sectors and asset classes.’ 60 The LMA produced its guidance on SLPs in May 2020 61 and ICMA produced its guidance on SLPs in June 2020 62 . The EU have also recently agreed a common language to identify what economic activities can be considered environmentally sustainable (the EU Taxonomy) 63 . There is increasing demand for this type of financing in the market with circa. $67.2 billion of loans with pricing linked to ESG targets issued in Europe, the Middle East and Africa in 2H 2019 and the increase of ESG-linked bonds rising circa. $10 billion per annum globally since 2017 64 . The drafting will mobilise more climate finance. The availability of industry approved terms allowing for finance linked to sustainable goals will make it easier for lenders to focus their lending practices to achieve ESG goals. This will encourage businesses and borrowers across the economy as a whole to transform their business into a more sustainable structure. For example, traditional development loans to be linked to environmental targets such as use of materials and other targets focusing on how buildings can be built in an environmentally friendly way.
Issue
Solution
Context
Impact
60 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/820284/190716_BEIS_Green_Finance_ Strategy_Accessible_Final.pdf 61 https://www.lma.eu.com/application/files/5115/8866/8901/Sustainability_Linked_Loan_Principles_V032.pdf 62 https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/June-2020/Sustainability-Linked-Bond-PrinciplesJune-2020-100620.pdf 63 https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_e n 64 https://www.bloomberg.com/news/articles/2019-10-16/esg-debt-a-user-s-guide-to-ever-growing-menu-of-bonds-and-loans
Made with FlippingBook - professional solution for displaying marketing and sales documents online