Major international syndicated lending organizations — the Loan Syndications and Trading Association (LSTA), Loan Market Association (LMA) and Asia Pacific Loan Market Association (APLMA) — recently published an extended set of green loan principles (GLPs).
The GLPs are a set of voluntary guidelines intended to promote consistency in the emerging green loan market. The LMA and APLMA originally published the GLPs in March 2018, closely tracking the International Capital Market Association's internationally recognized Green Bond Principles. For an overview of the GLPs, please see our May 2018 Blakes Bulletin: Canadian Investors Take Note: Budding Green Loan Market Set to Ramp Up in 2018.
EXTENDED GLPs
The extended GLPs integrate the July 2018 updates made to the Green Bond Principles and provide a more in-depth explanation as to how the GLPs can be applied to revolving credit facilities.
According to the GLPs, revolving credit facilities merit particular attention to the green use of proceeds in order to preserve the integrity of the green loan throughout its life. The GLPs recommend either a specific green tranche, or reporting on the use of revolver borrowings and identifying green assets supported by the revolving credit facility. The GLPs also strongly recommend that lenders turn to external review where they lack the sufficient internal expertise to monitor the ongoing sustainable information provided by the borrower.
LSTA FOCUSES ON SUSTAINABLE FINANCE
In its press release announcing the extended GLPs, the LSTA brought North America's attention to the green loan market, which has seen rapid growth throughout Europe and Asia. Such growth is expected to continue as market participants become more comfortable and familiarized with green loans and their potential benefits to lenders and borrowers alike.
Beyond endorsing the GLPs, the LSTA has also announced that it will be involved in seeking to produce a set of principles that apply to sustainability improvement loans (or sustainability-linked loans), which are products structured to incentivize a borrower to achieve predetermined sustainability performance targets.
A LOOK AHEAD
2018 was a big year for sustainable finance and 2019 appears set to continue that trend. We will continue to monitor developments in this area and in particular, whether green loans or other forms of sustainable finance will finally gain a foothold in the Canadian market.
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© 2018 Blake, Cassels & Graydon LLP.
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