Sustainability-linked loan (SLL)

A loan or contingent facility (such as a letter of credit) that incentivises the borrower to improve its environmental, social and governance (ESG) performance by directly linking the financial terms of the loan to the achievement of predetermined sustainability performance targets (SPTs) as measured by predefined key performance indicators (KPIs).

The key feature of an SLL is that the borrower's achievement of (or failure to achieve) the SPTs is aligned to the loan terms. The most common impact is that the margin on the loan is reduced if the SPTs are met and if the SPTs are not met, the margin may increase. Unlike other sustainable finance products, such as green loans or social loans, the proceeds of an SLL may be used for any purpose.

For more information about SLLs, including the sustainability-linked loan principles published by the Asia Pacific Loan Market Association (APLMA), Loan Market Association (LMA) and Loan Syndications and Trading Association (LSTA), see Practice note, Sustainability-linked loans.