With real estate finance (REF) and real estate development finance markets increasingly looking to integrate sustainability within their financing offerings, the Loan Market Association has published a guide on the application of the Sustainability Linked Loan Principles (SLLP) to real estate finance (REF) and real estate development finance transactions.
The guide sets out what borrowers, finance parties and their advisers should consider when looking to align their transactions to the SLLP and includes sections on:
- Terminology. The LMA has a glossary of terms common to sustainability lending products.
- Roles. Various specialised roles have arisen when applying the SLLP to loan transactions, including external reviewers, ESG rating providers and sustainability coordinators.
- Selection and disclosure of KPIs. Relevant ESG information should be provided to prospective lenders by the borrower in disclosure materials, at the outset of the transaction, to demonstrate a commitment to ESG. Key performance indicators (KPIs) and the associated sustainability performance targets (SPTs) should be ambitious and material to the borrower's core sustainability and business strategy. The guide provides an indicative list of KPIs used in the REF context in its appendix.
- Reporting and verification. Borrowers should document and keep available up-to-date information relating to their SPTs. They must also seek independent and external verification of their performance level against each SPT, for each KPI.
- Documentation. No template wording currently exists for use in sustainability linked loan documentation, but the guide outlines considerations for term sheets and loan facilities.
The list below sets out some common categories of KPIs seen in the REF and real estate development finance contexts, together with an example of the improvements which a KPI in this category might seek to measure.
The LMA has previously published similar guides for the application of the Green Loan Principles to REF transactions.