1、Sustainable Finance The rise of green loans and sustainability linked lending 3Linklaters Executive summary 5 Development of green and sustainability linked loans 7 Market activity 11 Trends in green and sustainability linked loans 15 What is driving the rise of green and sustainability linked finan

2、ce? 19 Changes to prudential regulation 23 Market leading expertise 25 Appendix 27 Key contacts 30 Contents Executive summary 4Powering the future Executive summary Green and sustainability linked loans are a hot topic in the loan markets. They are a relatively recent innovation, but volumes have ri

3、sen dramatically over the past few years to over US$99bn in 2018. The rise of green and sustainability linked loans signals the early stages of a fundamental shift in the wider economy. At first, there were no recognised market standards to help determine what qualifies as a green or sustainability

4、linked loan. While the Green Bond Principles first published by the International Capital Markets Association in January 2014 were a useful indication of the direction being taken in the capital markets, they focussed on bonds rather than loans, and on green use of proceeds rather than sustainabilit

5、y. In the loan markets, the Equator Principles have long been used by financial institutions for managing environmental, social and governance risks in the project finance market, but their application was limited in the wider loan markets. Without the benefit of recognised market standards there wa

6、s a risk of diverging approaches being taken on what amounts to a green or sustainability linked loan. At its worst, that risked loans being presented as green or sustainability linked, when in reality they were little different to an ordinary loan, sometimes referred to as “green washing”. Market s

7、tandards for green loans were published by recognised industry associations in March 2018, and were followed in March 2019 by sustainability linked loan standards. Green and sustainability linked loans are now recognised products globally. The drivers for the growth in green and sustainability linke

8、d loans are changing. What started as a mostly voluntary approach to addressing climate change risks and the need for businesses to act responsibly is beginning to be overtaken by regulation. In a speech in 2015, the Governor of the Bank of England, Mark Carney, set out how the catastrophic impacts

9、of climate change will be felt beyond the traditional horizons of most banks, investors and financial policy makers, imposing costs on future generations. He warned that once climate change becomes a defining issue for financial stability it may be too late, and noted that risks to financial stabili

10、ty will be minimised if the transition towards a lower- carbon economy begins early and follows a predictable path. Considerable progress has been made in the years since that speech. In March 2019, Mark Carney spoke of a step change in demand and supply of climate reporting, the push to better clim

11、ate change risk management and how advances in reporting and risk analysis are paving the way for investors to realise the opportunities in climate-friendly investment. A raft of national and international initiatives on climate change and corporate governance are starting to change how companies op

12、erate. There seems little doubt that in the face of ever increasing pressure, the growth of the green and sustainability linked loan markets is set to continue. 5Linklaters Green loans and sustainability linked loans are two different products, but the term “green loan” is sometimes used as an umbre

13、lla term to cover both. The defining feature of a true green loan is that the proceeds are used for green purposes. Classification of a sustainability linked loan does not depend on how the proceeds are used the key feature is that pricing is tied to the borrowers performance against certain pre- de

14、termined sustainability criteria. Volumes have risen dramatically over the past few years to over US$99bn in 2018. 7Linklaters Development of green and sustainability linked loans Green washing One of the hurdles faced by the green and sustainable finance market generally is the potential for green

15、washing. In October 2018, the UKs Financial Conduct Authority (the “FCA”) issued a discussion paper on “Climate Change and Green Finance”, which noted that: “Minimum standards can be helpful for enhancing investor confidence and trust and enabling markets to develop. For example, minimum standards m

16、ay help ensure investors understand what they are buying and prevent misleading green washing of financial products and services. Green washing is marketing that portrays an organisations products, activities or policies as producing positive environmental outcomes when this is not the case.” Minimu

17、m standards have been developed for the loan markets. The Loan Market Association (“LMA”), Asia Pacific Loan Market Association (“APLMA”) and the Loan Syndications and Trading Association (“LSTA”) launched their Green Loan Principles with the support of the International Capital Market Association (

18、“ICMA”) in March 2018. The Green Loan Principles are similar in scope to ICMAs own Green Bond Principles. The initiative began in 2017 at the instigation of the Global Green Finance Council, of which the LMA and ICMA are founder members, and the APLMA, which established a working group in 2016. A ye

19、ar later, in March 2019, the Sustainability Linked Loan Principles were published by the LMA, APLMA and the LSTA. Both the Green Loan Principles and the Sustainability Linked Loan Principles are voluntary frameworks, widespread adoption of which would mitigate the risks of green washing in the loan

20、markets. The Green Loan Principles The Green Loan Principles establish four key criteria: use of proceeds; the process of green project selection; management of proceeds; and reporting. Use of proceeds The fundamental defining feature of a green loan is that the proceeds are applied for green purpos

21、es. The Green Loan Principles include a non-exhaustive list of green projects towards which the proceeds of the loan could be applied, and require that the relevant green project provides clear environmental benefits. Process of green project selection Green borrowers are expected to communicate cer

22、tain key information to their lenders including details of their wider environmental sustainability objectives, the process by which they determine whether their projects are eligible green initiatives and the related eligibility criteria. They are also expected to provide details of any wider green

23、 standards to which they seek to conform. Management of proceeds The Green Loan Principles provide that the proceeds of a green loan should be credited to a dedicated account, or otherwise tracked by the borrower in an appropriate manner. This requirement is aimed at ensuring transparent use of proc

24、eeds for eligible green purposes in order to promote the credibility of green loans. By holding green loan proceeds separately, borrowers can more easily ensure that they are applied towards the purposes for which they are drawn, particularly where the facility may be used for more than one purpose.

25、 This also reduces the risk that proceeds are applied for other purposes and are not available to fund the relevant green project. Where the loan proceeds are to be applied over a period of time, borrowers are likely to prefer a staggered drawdown profile to drawing the whole amount of the loan to h

26、old in a deposit account pending application (since the interest received on that deposit is likely to be less than the interest accruing on the drawn loan). It is acknowledged in the Green Loan Principles that tracing the use of loan proceeds can be easier with a term loan than a revolving facility

27、 because revolving facilities tend to be flexible in the purposes for which they may be drawn. This can be addressed by structuring the facilities into separate tranches to make tracing easier there are examples of revolving facilities split into tranches for general corporate purposes and for green

28、 purposes, for instance. Reporting The borrower of a green loan is required to record the green projects towards which proceeds are applied, together with a description of the project, the amount allocated and the expected impact of the project. Borrowers should renew that information annually and r

29、eport it to their lenders. The Green Loan Principles recommend (but do not require) third party oversight, and acknowledge that borrowers can seek guidance and input on their green loan processes in a variety of ways examples include taking advice from external environmental consultants on their act

30、ivities and arranging certification against external green assessment standards. 8The rise of green loans and sustainability linked lending The Sustainability Linked Loan Principles Summary of the key features of the Green Loan Principles and the Sustainability Linked Loan Principles Green loansSust

31、ainability linked loans Aim To facilitate and support environmentally sustainable economic activity. To facilitate and support environmentally and socially sustainable economic activity. Definition Loan instruments made available exclusively to finance or refinance new or existing “green projects”.

32、Loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) which incentivise the borrowers achievement of ambitious, predetermined sustainability performance objectives. Restrictions on purpose The fundamental feature is the utilisation of the loan fo

33、r “green projects”. The Green Loan Principles set out a non-exhaustive list of 10 categories of green projects, including renewable energy, energy efficiency and pollution prevention and control. Loan proceeds should be credited to a dedicated account or otherwise tracked. No specific requirement fo

34、r use of proceeds loan could be for a borrowers general corporate purposes. Impact on pricing of borrower performance No pricing impact is contemplated in the Green Loan Principles. There are facilities which have been split into tranches for green purposes and for other purposes where the green tra

35、nche attracts lower pricing. The hallmark of a sustainability linked loan is that the borrowers performance against predetermined sustainability objectives affects the interest rate, incentivising improved performance over time. The Sustainability Linked Loan Principles set out a non-exhaustive list

36、 of 10 common categories of objectives, including reduced greenhouse gas emissions, reduced water consumption and the amount of renewable energy generated or used by the borrower. Review/reporting Borrowers should maintain records of the use of green loan proceeds, including a list of the green proj

37、ects to which the proceeds have been allocated together with a description of the project, amount allocated and the expected impact. External review is recommended but not required. The need for external review of the borrowers performance against its predetermined sustainability objectives is decid

38、ed on a case by case basis. For public companies, public disclosures may be sufficient to verify performance for the purposes of the loan. The key distinction between a green loan and a sustainability linked loan is that categorisation as a sustainability linked loan is not conditional on the procee

39、ds being used for a particular purpose. Instead, the defining feature is that the terms of the loan incentivise the borrower to improve its performance against certain pre-determined environmental, social and governance (“ESG”) criteria. In practice this would typically mean that the pricing on the

40、loan is directly linked to the sustainability performance of the borrower. 9Linklaters 10The rise of green loans and sustainability linked lending 11Linklaters Market activity Figure 1: Aggregate volumes of announced green and sustainability linked loans, 2014 2019 YTD (US$bn) Green loansSustainabil

41、ity linked loans Source: Bloomberg. 2019 data covers the period 1 January 2019 12 June 2019. 0 20 40 60 80 100 2001720182019 YTD 15.8 28.7 38.1 45.6 10.6 55.9 43.2 14.8 36.1 Figure 2: Aggregate volumes of announced sustainability linked loans 2017 2019 (extrapolated from YTD data) (US$bn)

42、 Announced aggregate loan valueExtrapolated volumes for the rest of the year Source: Bloomberg. 2019 data covers the period 1 January 2019 12 June 2019. 0 20 40 60 80 100 2017 10.6 2018 43.2 2019 36.1 45.2 According to Bloomberg data, global green and sustainability linked loan volumes exceeded US$9

43、9bn in 2018, with sustainability linked loans accounting for US$43.2bn of that (see Figure 1). Global sustainability linked loan activity in particular is clearly on the rise, and the rate of growth is increasing year on year. Projected sustainability linked loan volumes for 2019 exceed US$81bn base

44、d on extrapolating from deals announced between 1 January 2019 and 12 June 2019 (see Figure 2). 12The rise of green loans and sustainability linked lending Figure 4: Aggregate volumes of announced sustainability linked loans by borrower industry, 2017 2019 YTD 41% Utilities 19% Financials 14% Consum

45、er 9% Industrials 6% Materials 11% Others Worldwide sustainability linked loan volumes since 2017: US$89.9bn Source: Bloomberg. 2019 data covers the period 1 January 2019 12 June 2019. Figure 3: Aggregate volumes of announced sustainability linked loans by jurisdiction, 2017 2019 YTD (US$bn) Finland

46、 1.2 Singapore 1.2 Others5.6 Germany1.7 Belgium3.4 United Kingdom4.9 Netherlands9.2 United States11.6 Italy12.5 France19.3 Spain19.3 Source: Bloomberg. 2019 data covers the period 1 January 2019 12 June 2019. 05101520 A look at aggregate volumes of sustainability linked loans by jurisdiction over re

47、cent years shows that European jurisdictions are particularly active (see Figure 3), but the product reaches into markets globally. Sustainability linked loan activity is spread across various sectors, but has been dominated by borrowers in the utilities, financials and consumer sectors (see Figure

48、4). Global green and sustainability linked loan volumes exceeded US$99bn in 2018, with sustainability linked loans accounting for US$43bn of that. 13Linklaters Europe European markets currently lead global sustainability linked loan volumes, with a share of more than 80% of the market (see Figure 5)

49、. Activity has focussed mostly on Spain, France and Italy. The Americas While only a handful of sustainability linked loans have been made to US companies, aggregate volumes of announced deals to date total approximately US$11bn according to Bloomberg. Many of the larger transactions have been for subsidiaries of European companies that have entered into sustainability linked loans in their own right already. Asia-Pacific Green and sustainability linked lending is also attracting considerable attention in the Asia Pacific markets. The