According to Refinitiv LPC, nearly $167 billion in green and sustainable loans entered the global credit market in 2019, about 2.5 times more than in 2018. Of this activity in 2019, more than $135 billion was spent on sustainable development loans. A Sustainable Development Loan (LSC) provides the borrower with an economic incentive to achieve ambitious and predefined Sustainable Development Goals (PTTs), usually through margin. Loans are not just green financing – such as green loans – but an important form of specialized financing to help businesses move to more sustainable business models. They stand out as a transitional instrument and an SLL could be made available to any company that has a sustainable development plan, and it will reward that company for achieving the objectives set out in that plan. In response to the rapid global growth of SLLs, LSTA, LMA and APLMA issued a voluntary framework in March 2019 to categorize these loans and preserve the integrity of this loan product. The Principles of Sustainability linked loan are a general framework that identifies four key elements for sustainable loans: 1) the relationship between selected TPS and the borrower`s overall CSR strategy; 2) Setting the target; 3) reporting on the borrower`s performance with respect to relevant GMPs; and 4) the need for an external review negotiated on a deal-by-deal basis. A successful SLL is part of a borrower`s existing sustainable development strategy and complements it. In structuring an LSL, it is essential to draw attention to the choice of sustainable development metrics and the attitude of TPS – they must be identifiable, ambitious, useful for the borrower`s business and, perhaps most importantly, easily measurable. Given that these loans do not use determination means such as green loans, we expect the growth of this lending product to continue. Over the past 12 months, the LSTA has focused on the impact of ESG (environment, social and governance) considerations on the corporate credit market. In general, we know that companies and their investors in the financial markets are increasingly focused on the impact of ESG factors on their business.
This trend also applies to the credit market. For many investors and lenders, understanding a company`s broader risk – and how to deal with those risks – is essential to understanding a company`s broader risk profile. In addition, end investors regularly require asset managers to illustrate how ESG factors influence their investment decisions. According to a 2018 UNPRI report, 86% of asset owners plan to choose asset managers (up 31% from 2017) and 78% to monitor their asset managers (an increase of 25% per year). In addition, more than 80% of investors have a sustainable, impact or ESG policy. While obtaining reliable ESG information on companies is something that investors face in all asset classes, the fact that many borrowers are not state-owned enterprises in the credit market adds to the challenge. This is why the LSTA developed, on request and in collaboration with Buyside members, the ESG stagecoach questionnaire. The questionnaire was launched in February 2020 and will be completed by a borrower during the due diligence phase of the original credit process. When these are completed, it is expected that the responses will be sent to the relevant public data space for verification by potential lenders. In developing the questionnaire, the LSTA took into account three main considerations: 1) it should apply to each borrower in each sector; 2) Recognizing that many companies are just beginning to conduct an “ESG review” of their businesses, a borrower should be encouraged to share all the early concepts they have identified; and 3) This original version should be manageable to the extent that it is an infancy request for diligence.