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The market for green loans, sustainability-linked loans (SLLs)
and social loans (collectively, ESG Loans1) is growing
rapidly. However, it is moving so quickly that it can be hard to
get a grip on market trends. We have developed an online platform
which helps provide a more complete, and data-driven, picture of
Early in 2022, we started gathering and structuring key data on
the ESG Loans our EMEA offices have advised on. We worked with our
innovation programme (known as NRF Transform) to develop an online
platform to collect, store and analyse the data.
We are now ready to share our first insights based on the data
we have gathered in over 50 ESG Loans across Europe, the Middle
East and Asia-Pacific. We plan to provide further and more in-depth
insights as our data set grows.
As a large law firm, we work in a wide variety of sectors. As we
would expect, given the ubiquity of ESG and sustainability in
recent years, we are seeing ESG Loans across all industry
It is notable that shipping and financial investors are the most
common sectors in our data set. Clients in both of these sectors
have embraced the opportunity to borrow ESG Loans to show their
sustainability credentials and to de-carbonise their businesses.
For both sectors, the vast majority of these ESG Loans were SLLs.
This makes sense given the fact that SLLs do not have a “use
of proceeds” requirement, so are more readily accessible than
Based on our data, we have seen lower number of ESG Loans from
resource-intensive industries (commodities, power and utilities and
oil and gas), but we expect that to increase as transition plans
for companies in these sectors develop.
Green loans in particular are being utilised in the renewables
sector and SLLs and social loans are of interest to those in the
commodities sector, particularly for supporting low income farmers
and producers in improving crop yields (which is one SLL we have
The Sustainability-Linked Loan Principles (SLLPs) provide that a
key characteristic of an SLL is that an “economic
outcome” is linked to whether the relevant sustainability
targets are met. The SLLPs do not specify what that “economic
outcome” should be. In practice, in the vast majority of
cases, that outcome is an adjustment to the Margin.
In the early days of SLLs, we generally saw downward-only Margin
adjustments. This made SLLs popular with borrowers because there
was no risk of a price increase, regardless of their sustainability
performance. However, in the last year or so, we are increasingly
seeing lenders insist on Margin increases for bad performance along
with Margin decreases for good performance (known as two-way Margin
adjustments). While this is not required by the SLLPs, lenders are
using two-way Margin adjustments in an effort to bolster the
integrity of SLLs Our data set shows a fairly even split between as
a whole. “downward-only” and two-way Margin adjustments*.
As our data set grows, we hope to track changes in Margin treatment
in SLLs over time. We expect to see more two-way Margin adjustments
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1 The term specifically refers to financing transactions
that adhere to the principles set by the key loan associations
under their Sustainability-linked Loans, Green Loans and Social
* The “increase only” ESG Loan included in Chart 2 was
due to the particular circumstances of that loan. Essentially, the
transaction was structured so that the Margin would not be adjusted
if the sustainability targets were met, but would increase if they
were not met.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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