Sustainability-linked loans are not linked to specific projects. Borrowers are simply rewarded (or penalised) based on their performance on specific measures
, a mid-size Canadian consultancy, announced that it had amended the terms of a loan of $1.2bn. What made it unusual was that the interest rate hinges on hitting three targets. The company wants to reduce greenhouse-gas emissions from its operations, increase revenues from green sources, such as renewable energy, and raise the share of women in management. For every goal that it meets , its interest payments will fall by a set amount.
Sustainability-linked loans are not linked to specific projects. Borrowers simply get rewarded based on their performance on some environmental, social and governance measures. Green metrics, such as carbon emissions, are common. As with many forms of sustainable finance, greenwashing is a worry. One potential problem is the data on which the change in borrowing costs depend. Mike Wilkins ofGlobal, a credit-rating agency, says that the use of self-reported figures is a concern. Another option is to rely onscores calculated by specialist data firms and some credit-rating companies. Dozens of loans are based on these. But theEven with reliable data, it is unclear how ambitious the targets are.
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