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ARTICLE · 15 APRIL 2021

An Introduction To Sustainability Linked Loans

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

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Debt Dialogue addresses legal issues in debt financing, focusing on current issues of practical application.

United StatesFinance and Banking
Kenneth Chin
Kenneth Chin
Jefferson Lai
Jefferson Lai
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Introduction

In recent years, borrowers and lenders increasingly have recognized the benefits of sustainability linked loan products. Sustainability linked loans align the cost of borrowing with a borrower's performance measured against prescribed sustainability performance targets. Unlike with so-called green loans — which are also intended to promote sound environmental practices — the borrower is not restricted in its use of loan proceeds to only green projects with clear environmental benefits. But the borrower must conduct its business so as to achieve ambitious, yet attainable, sustainability performance targets. If a borrower meets these sustainability targets, there is a discount — or, if the borrower fails to meet the target, a premium — in the borrower's cost of borrowing.

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