Meaning
A financial instrument designed to encourage borrowers towards achieving specific environmental, social, and governance (ESG) goals.Definition
A Sustainability-Linked Loan (SLL) is a type of corporate loan where the interest rate can adjust based on the borrower’s achievement of pre-defined sustainability performance targets (SPTs).How It Works
Borrowers and lenders agree on Key Performance Indicators (KPIs) and SPTs. If the borrower meets these targets, the interest rate on the loan typically decreases. Conversely, failing to meet them may result in an increased interest rate.Benefits
SLLs incentivize companies to adopt sustainable practices, improve their ESG profiles, and can lead to reduced borrowing costs for those committed to positive environmental and social impacts.Author
