On February 2023, the Loan Market Association (“LMA”), in collaboration with the Asia Pacific Loan Market Association,

and the Loan Syndications & Trading Association published updated versions of Green Loan Principles and Guidance (“GLP Guidance”) (originally published in March 2018 (“GLP”)), Social Loan Principles and Guidance (“SLP Guidance”) (originally published in April 2021 (“SLP”)) and Sustainability-Linked Loan Principles (“SLLP Guidance”) (originally published in March 2019 (“SLLP”)). The GLP, SLP and SLLP were developed to promote consistency throughout international sustainable loan markets and to boost the trustworthiness and integrity of the relevant green, social and sustainability-linked loans.

Green and Social Loan Principles

According to the Sustainable Lending Glossary of Terms published in August 2021, green loans and social loans are loan instruments where the proceeds are used to finance or refinance new and/or existing green projects or social projects respectively. The GLP and the SLP set out a clear framework based on four core components. Those are (i) use of proceeds, (ii) process for project evaluation and selection, (iii) management of proceeds and (iv) reporting. More specifically,

(i) use of proceeds: the loan proceeds of greens loans must be applied for green loans and the loan proceeds of social loans must be applied for social loans. The loan proceeds should be described in the finance documents, and if applicable, marketing materials.

(ii) process for project evaluation and selection: the borrower should communicate to the lender their environmental sustainability objectives, the procedure followed to determine whether a project is eligible under the GLP’s and/or the SLP’s respective categories, and for managing actual or potential, environmental or social risks associated with the proposed project.

(iii) management of proceeds: the loan proceeds should be credited to a dedicated account and should be tracked in such a manner as to maintain transparency and promote integrity.

(iv) reporting: the borrower should provide an annual report with evidence and information regarding the above-mentioned three components in points (i) to (iii) above until the green loan(s) and/or the social loan(s) are fully drawn, and as necessary thereafter in the event of material developments to the GLP and the SLP respectively.

Changes to the Green and Social Loan Principles

Some of the important clarifications and changes under the revised GLP Guidance and the SLP Guidance include the following:

  • The choice between a green loan and/or a social loan: a loan could be classified either as a green loan or as a social loan, depending on the goal it serves. According to the GLP Guidance and the SLP Guidance as revised, it is clarified that such loans should be classified in accordance with the borrower’s primary intentions.
  • External reviews: The GLP Guidance and the SLP Guidance suggest the use of an external auditor or other third parties, in order to ensure that the borrower and the green loan and/or social loan align with the GLP’s and the SLP’s four core components as mentioned in points (i) to (iv) above. External review is not mandatory.
  • Eligible green projects: the non-exhaustive list of indicative categories of eligibility for green projects, as set out in appendix 1 of GLP, has been updated. As a result the GLP Guidance now includes green technologies, circular economy-adapted products and also provides that borrowers should report to lenders to what extent their projects align with official or market-based taxonomies.

Sustainability Linked Loan Principles

SLLP defines sustainability-linked loans as: “…types of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) for which the economic characteristics can vary depending on whether the borrower achieves ambitious, material and quantifiable predetermined sustainability performance objectives…”.

The SLLP Guidance provides a framework with five core components to enable market participants to identify the characteristics of a sustainability-linked loan. These components are:

  • selection of Key Performance Indicators (“KPIs”): KPIs must be material to the core sustainability and business strategy of the borrower, and relevant environmental, social, and corporate governance (“ESG”) challenges should be addressed. Also, KPIs should be measurable and quantifiable on a consistent methodological basis and able to be benchmarked against an industry standard and/or industry peers where feasible.
  • calibration of Sustainability Performance Target (“SPT”): SPTs must be set in good faith, remain relevant and ambitious throughout the life of the loan. Furthermore, it is recommended that an annual SPT should be set per KPI for each year of the loan term. The borrower should disclose its ESG strategies, which may affect the achievement of the SPTs, among other factors which are, in more detail, listed in the SLLP Guidance.
  • loan characteristics: a key characteristic of a sustainability-linked loan is that an economic outcome is linked to whether the selected predefined SPT(s) are met, according to the SLLP Guidance.
  • report: similar to the GLP and the SLP, the SLLP Guidance reporting component aims for transparency between the borrower(s) and the lender(s). At least once a year, the borrower should provide the lender with an up-to-date report, for the lender to be able to determine if the SPTs remain ambitious and relevant. Also, the annual report should include a sustainability confirmation statement, outlining the performance against the SPTs, and the related impact on the loan.
  • verification: Opposed to pre-signing review, which is optional, post-signing verification is an obligation of the borrower. It is mandatory to obtain independent and external verification for its performance level against each SPT for each KPI for any date/period the relevant SPT affects the sustainability-linked loan’s economic characteristics. The verification should be performed by a qualified external reviewer, such as an auditor, an environmental consultant and/or an independent rating agency, and must be shared with the lender in a timely manner, while being made public, where appropriate.

Changes to the Sustainability Linked Loan Principles

A few noteworthy changes under the revised SLLP include the following:

  1. Selection of material KPIs: Borrowers are required to carry out materiality assessments so as to benchmark KPIs to an appropriate level, taking into account the most appropriate ESG considerations.
  2. Application of ambitious SPTs: SPTs must remain ambitious throughout the term of the loan, they must represent a “material” improvement in the relevant KPIs and must go beyond both a “business as usual” trajectory and regulatory required targets.
  3. Verification of the borrower’s performance against KPIs and SPTs: Whilst previously external verification reports were required to be provided at least once a year, the requirement now provides that “borrowers must obtain independent and external verification of the borrower’s performance level against each SPT for each KPI for any date/period relevant for assessing the SPT performance leading to a potential adjustment of the SLL economic characteristics, until after the last SPT trigger event of the loan has been reached”. Pre-signing external review remains recommended.


It should be noted that all transactions finalised prior to 9 March 2023 are exempted from the obligation to comply with the SLLP Guidance, GLP Guidance, SLP Guidance. Any transactions completed prior to that date shall be reviewed in conjunction with the principles and guidance in force at the time of the loan’s origination. Nevertheless, all loans made after 9 March 2023 must be fully aligned with the relevant GLP Guidance, SLP Guidance and/or SLLP Guidance so as to be classified as green loans, social loans or sustainability-linked loans respectively.


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