Industry standards and relevant publications

Loans

The Loan Market Association (LMA), along with the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA), first published its Sustainability-Linked Loan Principles (SLLPs) in 2019 to provide a framework for drafting sustainability-linked loans. These have been updated in 2022, 2023 and 2025 to reflect the latest market developments as sustainability-linked financings have become more prevalent and as this market is in constant evolution. If the terms of a financing do not meet the 5 Key Components set out above, the financing shall not be classified as an SLL.

The SLLPs do not specify the specific incentives to be included in the documentation and it is acknowledged that different borrowers in different jurisdictions and sectors will be able to set different targets and achieve different outcomes. It should be noted that the SLLPs are intended to be used for sustainability-linked financings designed to support a borrower’s transition to more sustainable practices.

The SLLPs and related guidance, including the Guidance on Sustainability-Linked Loan Principles published in May 2020 and further guidance published in March 2022, February 2023 and March 2025 to provide market practitioners with clarity on their application and to promote a harmonised approach, are a joint publication of the LMA, APLMA and LSTA. In addition, these trade associations have published the Sustainable Lending Glossary of Terms, last updated in December 2023, which may be helpful for navigating this ecosystem; and they have also published An Introduction to Green Loan Framework, which contains several tables that can be used as a checklist for borrowers contemplating setting up green loan frameworks.

Moreover, in January 2024, the LMA, APLMA and LSTA published the External Review Guidance for Green, Social and Sustainability-Linked Loans which, among other things, complements the SLLPs by promoting best practice and providing guidance in relation to the independent external review obtained by borrowers in the course of a Green, Social or SLL transaction, since external verification is key.

Furthermore, in July 2021, the LMA and the European Leveraged Finance Association (ELFA) jointly published Best Practice Guidance to Sustainability-Linked Leveraged Loans, as last revised in October 2023, to provide practical guidance on the application of the SLLPs to ordinary leveraged loans that seek to incorporate any type of ESG factor or metric, addressing several areas such as the selection of KPIs.

The LSTA published Drafting Guidance for SLLs in February 2023, and the LMA published the SLL Rider in May 2023, with the accompanying Term Sheet for Draft Provisions for Sustainability-Linked Loans published a few months later. Along with the term sheet published by the LMA, the APLMA also published in September 2022 its own Term Sheet (with Sustainability-Linked Loan Appendix), as last revised in July 2024.

This long-awaited SLL Rider contains proposed draft provisions which, subject to case-specific customisation and negotiation, can be inserted directly into the LMA leveraged facilities agreement and can be adapted for use in conjunction with the LMA’s other recommended forms of facility agreement. The SLL Rider has been developed in response to the rapid growth of SLL issuance in the preceding years. One of the objectives of the SLL Rider was to better protect the integrity of the SLL market by providing a basic drafting framework, bringing a greater degree of standardisation to the documentation used in the market and streamlining the negotiation process which, beforehand, had often proved time-consuming given the range of different drafting standards in the market. With the same objective, the LMA published in April 2024 the Sustainability Coordinator Letter model, the terms of which are intended to provide a starting point for customisation and negotiation.

Bonds

In June 2020, a few months before the publication of its Climate Transition Finance Handbook – Guide to Issuers, which aims to provide capital markets participants with clear guidance, the International Capital Market Association (ICMA) published the Sustainability-Linked Bond Principles, a set of voluntary process guidelines. They provide a clear definition of what constitutes an SLB and identify its key components.

SLBs are a forward-looking performance-based instrument, pursuant to which a borrower explicitly commits to future improvements in its sustainability performance over a predefined timeframe. Based on the 5 Key Components listed above, the Principles provide recommendations on structuring, disclosure and reporting, such as the requirement to include a meaningful and commensurate variation of the structural characteristics of each SLB (which is the cornerstone of sustainability financing) and the consideration of science and of the borrower’s own performance over recent years in defining each SPT. It also recommends seeking an external reviewer verification that SLBs are in line with the 5 Key Components, which could take the form of a second party opinion assessing the robustness and relevance of the KPIs and the level of ambition of the SPTs, while also providing an exhaustive checklist of recommended or required pre- and post-issuance disclosures.

The Principles have since been updated with the June 2024 version (together with the Guidance Handbook, June 2024 version), which in particular clarifies how KPIs should be selected and makes specific reference to the KPI Registry (see below).

As one of the key players in sustainability finance, ICMA publishes other useful content, such as its High-Level Mapping to the Sustainable Development Goals and a Q&A on SLBs, both as updated in 2023.

ICMA also publishes:

• a KPIs registry , based on the data and analytics provided via the Luxembourg Stock Exchange’s LGX DataHub, which provides more than 450 examples of KPIs, classified by activity sector and theme, to help arrangers, issuers and investors in the design and evaluation of these SLBs
• an SLB disclosure data checklist, which provides guidance for issuers of SLBs on elements that are recommended or deemed necessary to be disclosed in connection with the issuance of an SLB.

Finally, the ICMA, together with the LMA, published the Sustainability-Linked Loans financing Bond Guidelines (SLLBG) in June 2024, which provide a framework for the issuance of bonds that finance or refinance portfolios of SLLs. Unlike SLBs, SLLBGs are use-of-proceeds bonds (and their four components are aligned with the Green Bond Principles and the Social Bond Principles published by the ICMA), but the proceeds of the SLLBGs are to be allocated to eligible SLLs aligned with the SLLPs.

The ICMA has also established working groups to monitor the development of the SLB market.

Derivatives

SLDs are an evolving product used to incentivise ESG performance and/or to facilitate support for sustainable projects. The International Swaps and Derivatives Association (ISDA) has issued a number of publications, such as KPI Guidelines published in 2021, in which it shares its recommendations regarding the selection of the KPIs and provides a list of the most common categories of KPIs. This list includes KPIs that reduce behaviour that negatively impacts the environment or promote behaviour that benefits the environment, by tracking the counterparty’s overall ESG performance through ratings issued by a specific third party, or by linking the counterparty’s performance to requirements under international agreements such as the Paris Agreement and the United Nations Sustainable Development Goals (SDGs).

In 2021, the ISDA published a guidance note on regulatory considerations in respect of SLDs and in November 2022, taking note of the emerging demand for these products (although it is a nascent market), issued The Way Forward for Sustainability-Linked Derivatives.

In 2022, the ISDA also published Sustainability-Linked Derivatives: Where to begin?, which addresses issues faced by capital market participants, summarises the regulatory framework and advises on the key provisions to consider when promoting the diverse use of SLDs.

More recently, in January 2024, ISDA published a clause library for SLDs (available on the ISDA MyLibrary platform), which provides standardised drafting options for market participants to use when negotiating SLD transactions with counterparties.