LMA, LSTA and APLMA issue revised Green, Social and Sustainability-Linked Loan Principles and Guidance

On 23 February 2023, the Loan Market Association (LMA), the Loan Syndications & Trading Association (LSTA) and the Asia Pacific Loan Market Association (APLMA) published updated versions of Green Loan Principles and Guidance, Social Loan Principles and Guidance and Sustainability-Linked Loan Principles and Guidance.  The update to the principles reflects recent market developments across the global sustainable finance markets.


A working group consisting of representatives from leading financial institutions active in the global syndicated markets, has developed updated Green Loan Principles and Guidance (GLP), Social Loan Principles and Guidance (SLP) and the Sustainability-Linked Loan Principles and Guidance (SLLP) (together, the 2023 Principles).  The GLP, SLP and SLLP were developed to create high level frameworks of voluntary recommended market standards to promote consistency across the sustainable loan markets. The frameworks aim to preserve and enhance the integrity of these loan products while allowing for flexibility, which is essential for the market to develop.  

The Basics and the Changes

Green/Social Loan Principles and Guidance (Use of Proceeds Loans)

Green loans and social loans are instruments and/or contingent facilities where the proceeds of the loan are used to finance or refinance, in whole or in part, new and/or existing eligible green projects (in the case of green loans) or eligible social projects (in the case of social loans).  The GLP and the SLP set out a clear framework to aid market participants’ understanding of green and/or social loans based on the following four components:

  • Use of Proceeds – proceeds must be used for green/social projects which are appropriately described in the finance documents and, if applicable, marketing materials.
  • Process for Project Evaluation and Selection – the borrower should communicate the green/social projects’ environmental sustainability objectives and its process for selecting eligible projects, as well as other information with which the borrower identifies and manages perceived, actual or potential environmental and social risks associated with the relevant projects.
  • Management of Proceeds – proceeds should be credited to a dedicated account and tracked by the borrower in an appropriate manner.
  • Reporting – the borrower should annually report up to date information and update in the case of material developments.

The updated GLP and SLP:

  • give more detail on eligible green or social project categories;
  • recommend that the proceeds of a green and/or social loan should be attested to by the borrower in a formal internal process linked to the borrower’s lending and investment operations for green and/or social projects (including disclosing any temporary placement for the balance of unallocated proceeds);
  • give additional detail on requirements for external reviewers; and
  • recommend that borrowers appoint (an) external review provider(s) to assess alignment of the green and/or social loan or programme with the four core components of the GLP and/or SLP. This has been introduced as a recommendation rather than mandatory requirement to strike the right balance between transparency and flexibility.
Sustainability-linked Loan Principles and Guidance

Sustainability-linked loans are any type of loan instrument and/or contingent facilities for which the economic characteristics can vary depending on whether a borrower achieves ambitious, material and quantifiable predetermined sustainability performance objectives.  Proceeds are usually used for general corporate purposes as the loan is meant to help support a borrower in improving its sustainability performance. The SLLP set out a framework to enable market participants to understand the characteristics of a SLL, based on the following five components:

  • Selection of KPIs – key performance indicators (KPIs) are credible, ambitious, material to the borrower’s core sustainability and business strategy and addressing the relevant challenges of its industry sector.  It is important that any KPI is measurable and quantifiable on a consistent methodological basis and is capable of being benchmarked as far as possible to external reference or definitions to assess the ambition of the KPI.
  • Calibration of SPTs – effectively setting the sustainability performance targets (SPTs) that the borrower must achieve in respect of each KPI.  They must be ambitious, set in good faith and remain relevant as long as they apply.  An annual SPT is recommended per KPI and the borrower should, where possible and taking competition/confidentiality considerations into account, disclose strategic information which may decisively impact the achievement of SPTs.
  • Loan Characteristics – a key characteristic of a SLL is that an economic outcome is linked to whether the borrower achieves the predetermined SPTs. This will typically be implemented by a margin adjustment where achievement of SPTs results in a margin reduction and failure to do so may result in a margin increase.
  • Reporting – at least annually borrowers should provide lenders with (1) up-to-date information enabling lenders to monitor the performance of SPTs and determine that they remain ambitious and relevant; and (2) a sustainability confirmation statement with a verification report attached outlining performance against SPTs for the relevant year and the related impact on the margin.  Borrowers are encouraged to make this information public, possibly in their annual reports or sustainability reports.
  • Verification – independent and external verification is required of the borrower’s performance level against each SPT for each KPI for any relevant date/period which may lead to margin adjustment until after the last SPT trigger event of the loan has been reached.  Pre-signing verification is recommended (such as a second party opinion (SPO)), but post-signing verification is mandatory.

The updated SLLP:

  • highlight the importance of KPIs being material to the borrower’s core sustainability and business strategy, and addressing relevant ESG challenges of its industry sector;
  • recommend that annual SPTs are set for each KPI for each year of the loan term;
  • contain helpful updated guidance and clarification on verification reports and external reviewers; and
  • clarify that for a loan to be a SLL, the KPIs and SPTs and all other core components of the SLLPs must be documented at origination. Only in exceptional circumstances, and only if the borrower already has a clear sustainability strategy in place, can the parties agree to set KPIs and SPTs post-origination, and this must be done no later than 12 months after origination. And until SPTs have been set, in no circumstances can the loan be called a SLL. It is recommended that it be a unanimous lender decision to agree those SPTs and KPIs other than where the size the syndicate makes this impractical.


All green, social or sustainability-linked loans completed prior to 9 March 2023 will be exempt from following the 2023 Principles and should be reviewed in conjunction with the version of the GLP, SLP and/or SLLP in force at the time of origination.  All loans originated, extended or refinanced after 9 March 2023 must fully align with the relevant 2023 Principles to be classified as “green loans”, “social loans” or “sustainability-linked loans”.

This is a brief summary of the 2023 Principles and it should be read together with the 2023 Principles themselves including the related guidance. 

Next steps

Following the update to the GLP, SLP and SLLP, the LMA will be working on further projects to enhance and maintain credibility in the sustainable loan markets.  Watch this space!

Our Sustainable Finance & Investment practice brings together a multidisciplinary global team to support our clients in this mission-critical area. 



Authored by Emily Julier, Oliver Shafe, Susan Whitehead, and Bryony Widdup.

Emily Julier
Senior Knowledge Lawyer
Oliver Shafe
Senior Associate
Susan Whitehead
Senior Consultant
Bryony Widdup


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