Changes to ESG loan market standards
The first few months of 2021 have seen the publication of various new and updated loan market standards for ESG loan products. The Green Loan Principles (“GLP”) were updated on 11 February 2021. Then new Social Loan Principles (“Social LP”) were published on 13 April 2021. Perhaps most significantly, overhauled Sustainability Linked Loan Principles (“SLLP”) and accompanying Guidance (“SLLP Guidance”) were published on 27 May 2021.
Recap on ESG loan market standards
The SLLP were originally published by a joint working group of the Loan Market Association (the “LMA”), the Asia Pacific Loan Market Association and the Loan Syndications & Trading Association in 2019. They benefit from supplementary guidance published in 2020 and set out voluntary market standards for what constitutes a sustainability linked loan. Over time, sustainability linked loans have evolved increasingly sophisticated features. The updates made to the SLLP and SLLP Guidance reflect the evolution of the product and more closely align with the Sustainability Linked Bond Principles published by the International Capital Market Association.
The GLP were published in 2018 and set out voluntary market standards for what constitutes a green loan. The February 2021 changes to the GLP are less extensive than those made in relation to the SLLP, and focus on how borrowers communicate certain eligibility criteria for a green loan to lenders.
The Social LP represent a new product for the loan markets, but one which builds on the concept of a green loan. The key characteristic of a green loan is that it finances a green activity. In a similar way, a social loan is made to finance activity which mitigates or improves social challenges. The publication of the new Social LP reflects a desire among market participants that such loans be recognised as a separate loan product.