Sustainability-Linked Loan

A sustainability-linked loan (SLL) is an innovative financing instrument designed to incentivize borrowers to achieve measurable sustainability performance targets (SPTs) tied to environmental, social, or governance (ESG) criteria. Unlike green loans, which fund specific eco-friendly projects, SLLs apply to general corporate purposes and adjust loan terms—typically interest rates—based on the borrower’s progress toward predefined goals (e.g., reducing carbon emissions, improving energy efficiency, or enhancing diversity). If targets are met, the borrower may benefit from reduced interest rates; failure to achieve them could result in financial penalties. SLLs align corporate financial strategy with long-term sustainability objectives, fostering transparency and accountability through independent verification. These loans are increasingly popular among companies committed to ESG integration and stakeholder-driven value creation.