Following the publication of a draft multicurrency facility term sheet including a sustainability-linked loan appendix by the Asia Pacific Loan Market Association (APLMA) in the last quarter of 2022, on February 17, 2023, the Loan Syndications and Trading Association (LSTA) issued drafting guidance for sustainability-linked loans, to provide drafting examples of provisions related to sustainability-linked loans for a U.S.-style syndicated credit agreement.
On February 22, 2023, the LSTA, the APLMA, and the Loan Market Association (LMA) jointly issued updated versions of the Guidance on Sustainability-Linked Loan Principles (SLLP), Guidance on Green Loan Principles (GLP), and Guidance on Social Loan Principles (SLP). Each of the Guidances should be read alongside the respective updated principles SLLP, GLP, and SLP. Although these are suggested market-standard frameworks, it is recommended by the loan bodies that loan transactions completed prior to March 9, 2023, should continue to follow the original positions under the relevant guidelines and principles relating to SLLP, GLP, and SLP and that all loans originated, extended, or refinanced after March 9, 2023, should fully align with the relevant guidelines and principles of SLLP, GLP, and SLP as amended by the 2023 updates.
The LSTA, APLMA, and LMA had previously jointly issued the latest version of Guidance for Green, Social and Sustainability-Linked Loans External Reviews in March 2022, which is a voluntary guidance on professional and ethical standards for external reviewers for circumstances where external review providers are appointed to undertake external reviews in connection with entering into and executing green loans, social loans, or sustainability-linked loans. The purpose of that update was to align with the guideline on the same topic issued by the International Capital Market Association (ICMA) in the previous year.
These regular updates by loan industry bodies covering Europe, Asia Pacific, and the United States show a growing trend toward standardizing loan terms with respect to green loans, social loans, or sustainability-linked loans by providing a harmonized recommended framework for credit market players to encourage borrowers to contribute to sustainability from an environmental, social, and governance (ESG) perspective. Alignments made with ICMA guidelines also show the intention to promote consistency across debt (bond and loan) markets.