The Sustainability Linked Loans Checker is designed to help Corporations, Banks and Financial Institutions assess the eligibility of any type of loan financing – including term loans, revolving credit facilities, or any other type of facility – to qualify as Sustainability Linked Loans and enabling the company’s assets to be tied to predetermined ESG metrics.
As markets turn to more sustainable growth and “greener” economic activity, leading financial institutions start to give more weight to sustainable investment and loan financing. In turn, lenders need to assess projects in greater detail against sustainability benchmarks.
By automating the assessment process, the Sustainability Linked Loans Checker enables businesses to easily conduct a sustainability check, understand their current ESG score and assess available opportunities. All assessments are automatically evaluated to provide the user with an instant sustainability rating based on transaction-specific requirements and the answers provided.
Before 2016, the approach to addressing climate change risks and the need for businesses to act responsibly was primarily based on voluntary initiative. But over the last five years, this approach has been gradually overtaken by regulations. One example of this was the Loan Market Association (“LMA”), Asia Pacific Loan Market Association (“APLMA”) and the Loan Syndications and Trading Association (“LSTA”) who launched their Green Loan Principles with the support of the International Capital Market Association (“ICMA”) in March 2018. A year later, in March 2019, the Sustainability Linked Loan Principles were published, as a landmark move to help align loan facilities with sustainability potential.
The defining feature of Sustainability Linked Loans is that the terms of the loan incentivize the borrower to improve its performance against certain pre-determined ESG criteria. As a result, the pricing on the loan is linked to the sustainability performance of the borrower. In this context, the role of investors is a fundamental driver for companies to be compliant with ESG criteria since many of them are now requiring asset managers to fully integrate ESG into their investment processes, also in light of the new issues that emerged with the COVID-19 outbreak.
Sustainability Linked Loans Principles
Under the Sustainability Linked Loans Framework, there are five core principles against which lenders can assess the sustainability rating of a loan facility: selection of KPIs, calibration of SPTs, loan characteristics, reporting and verification. The goal of these principles is to ensure that loan facilities are used towards sustainable objectives and closely aligned to the strategic sustainability policies and targets.
Lenders’ Perspective: Sustainability Checking
But while the principles work towards more sustainable economic growth, they do put an additional strain on lenders, who now need to invest additional efforts in assessing loan facility requests for sustainability.
As a rule of thumb, lenders need to inspect projects’ sustainability verification made by environmental consultants, or independent auditors with relevant expertise, and they also need to continuously check the project against sustainability benchmarks, monitor the borrower’s performance and ensure consistent reporting, which is only exacerbated by different types of sustainability goals envisaged by the SLLP.
With BRYTER, corporations and financial institutions can easily assess the sustainability score of any kind of loan facility against regulatory requirements and industry standards.
Our financial services automation interactive tool guides the user through a transaction-specific questionnaire and automatically calculates a sustainability score based on each type of debt facility. As a result, the user receives a 360° assessment of their sustainability risks and opportunities, along with practical next steps to mitigate the different risks, including the loan being labelled as “greenwashing”, and to set the “sustainability performance targets” (“SPTs”) for the borrower.
Automated & Standardized
The Sustainability Linked Loans Checker automatically calculates a sustainability rating based on core ESG regulations and business standards.
Fast & Safe Execution
The Sustainability Linked Loans Checker provides a fast assessment in an easy-to-use format to ensure corporations and financial institutions can respond efficiently to investor demands and regulatory obligations.
As with every application built on BRYTER, the Sustainability Linked Loans Checker may easily be modified and integrated to tailor transaction-specific needs and include up to date changes in regulatory guidance.
How it works
Identify sustainability risks
Through a customizable, user-friendly and interactive questionnaire, all relevant data is collected and processed. It enables users to assess current company practices and asset requirements against the respective regulatory tests and to generate automated triaging and documentation.
Assess sustainability score and risks
A sustainability rating is generated from the initial assessment, flagging core risks and providing recommendations for mitigation and improvement. The risk assessment can be intertwined with other processes and document generation to streamline the assessment process.
A tailored and detailed report is automatically generated to allow users to easily share identified sustainability scores and risks internally and to receive fast advice on potential opportunities and risk mitigation.