Ireland: Sustainable Loans Are Here To Stay

Last Updated: 26 April 2019
Article by Matthew Dunn, Grainne Hennessy, Brendan Wallace and Charlotte Upton
Most Read Contributor in Ireland, July 2019

Sustainable loans are bilateral or syndicated credit facilities where the terms of the financing offer the borrower some form of incentive to achieve targets for improving their environmental, social and governance (ESG) or sustainability performance.


There have been various positive developments relating to green finance over the past few years: for example, Ireland is one of several sovereigns to have issued a green bond in line with the International Capital Market Association Green Bond Principles and numerous corporate borrowers have entered into loan financing transactions which comply with the green loan principles published by the Loan Market Association and other trade associations (the Green Loan Principles). However, recent Bloomberg data has shown that the issuance of 'sustainability-linked' or 'ESG-linked' loans (referred to in this briefing as sustainable loans) outstripped that of green loans in 2018.

The performance incentive element to sustainable loans is usually achieved by means of a margin ratchet which adjusts the loan's pricing by reference to one or more performance measures selected by the parties (as an alternative to a margin ratchet tracking performance against financial covenants). The amount of any margin adjustment may not be particularly significant, particularly for an investment grade borrower which is likely to benefit from attractive pricing and/or may be entering a revolving credit facility which is unlikely to be fully drawn at all times.

However, this incentive-based approach is aimed primarily at demonstrating the commitment of all parties to a loan financing to achieving (and financing) sustainable business performance rather than minimising pricing. The relevant sustainability performance targets may be selected because they are particularly relevant to the borrower company's core business or may instead track a basket of factors by way of the use of an ESG rating or score determined by an external consultant or advisor.

Sustainable loans potentially offer greater flexibility and wider scope for application for borrowers whose activities are outside of the core 'green financing' space. For example, the Green Loan Principles currently require compliance with requirements for Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds and Reporting. These requirements may not be workable for all transactions (given a borrower may not raising debt solely to fund specific green projects) or for all types of financing (it may be difficult to limit the use of a revolving facility to green purposes only rather than general corporate purposes) although the Green Loan Principles may be able to accommodate this issue by allowing for a 'green loan' tranche within a larger revolving facility.

Examples of Sustainable Loan Transactions involving business-specific ESG targets or external ESG monitoring

  • Italian insurance company Assicurazioni Generali has raised revolving facilities which link pricing to progress made in relation to certain sustainability initiatives.
  • Red Eléctrica de España (Spanish electricity network) entered into a EUR800m RCF with a margin ratchet linked to a ESG rating assigned by the independent provider Vigeo Eiris.
  • Pennon Group and its subsidiary South West Water have entered into revolving credit facilities with margin ratchets which are based on performance indicators linked both to their overall ESG performance and to specific targets for bathing water quality in the region supplied by South West Water.

Sustainability Linked Loan Principles

The Loan Market Association, the Loan Syndications and Trading Association and the Asia-Pacific Loan Market Association on 20 March 2019 published the Sustainability Linked Loan Principles ("SLLP") to "promote the development and preserve the integrity" of sustainable loans by providing guidelines which capture the fundamental characteristics of these loan products. The SLLP set out four key components which should be addressed in a sustainable loan financing:

  • Relationship to a Borrower's Overall Corporate Social Responsibility (CSR) Strategy

    Each borrower should clearly communicate to its lenders its sustainability objectives and how these align with the sustainability performance targets proposed to be used in its sustainable loan financing, as well as providing details of any external standards or certifications to which they are seeking to conform.
  • Target Setting – Measuring the Sustainability of the Borrower
    "Performance targets should be ambitious and meaningful to the borrower's business and should be tied to a sustainability improvement in relation to a predetermined performance target benchmark".
    Borrowers may be encouraged to seek a third party opinion as to the appropriateness of their sustainability performance target as a condition precedent or otherwise borrowers should seek to demonstrate or develop the internal expertise to verify its approach.
  • Reporting
    Borrowers should be encouraged to report information relating to their sustainability performance targets either in public reporting or in private reporting delivered to its lenders.
  • Review
    For publicly traded companies, it may be sufficient for lenders to rely on the borrower's public disclosures (accompanied by appropriate audit/assurance statements) to verify its performance against its sustainability performance targets. In other cases, a borrower's performance should be independently verified by a qualified external reviewer, such as an auditor, environmental consultant and/or independent ratings agency, at least once a year.

Incentive for lenders to participate

Regulators are increasingly focussed on sustainable finance: recent legislative proposals published by the European Commission in this area have been aimed at (among other matters) ensuring that financial institutions have adequate systems and controls to manage the risks arising from climate change (including to their own business models) and that they support the transition to a low-carbon economy. There has also been some speculation as to whether future capital regulatory frameworks may potential offer preferential capital treatment for assets which comply with certain sustainability metrics.

Participation in sustainable loans is a means for banks to demonstrate their efforts in this area and also to highlight their performance against their own ESG goals. For example, BNP Paribas has stated that it aims to ensure that at least 40% of its loan assets are subject to specific systems to manage environmental/social risks. Establishing credentials in sustainable loans is also of course a means for banks to show their alignment with their corporate customers' ESG objectives.

As the sustainable finance market develops, banks which originate sustainable loans may face conflicting dynamics in relation to syndication and balance sheet management, as they may see incentives both to retain ownership of sustainable loan assets (in line with their own ESG goals) and also to sell down their exposure in order to tap into the growing institutional investor demand for sustainable finance assets. This is unlikely to be a pressing concern for as long as revolving facilities for investment grade corporate borrowers dominate the sustainable loan market but may become more relevant as drawn term loans and private placements become more common types of sustainable loan financings.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions