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Increased regulation and investor demand are driving change in the direct lending market’s approach to environmental, social, and governance (ESG) factors and sustainability. In addition, lenders are exploring how their sphere of influence in the investment space can be used to actively contribute to positive change. Lenders like Alcentra are integrating ESG into their investment universe primarily through sustainable finance, and the provision of sustainability-linked loans.

In 2022, 50% of European leveraged loans included sustainability-linked features—continuing the upward trajectory from 44% in 2021.1 While the geopolitical landscape and challenging macroeconomic backdrop in 2023 led to a slowdown in primary issuance, ESG remains at the forefront of developments in the European leveraged loan market.

This whitepaper will provide insight into the key features of sustainability-linked loans (SLL) and will use both market data and case studies to explain how the SLL market has evolved. We look at:

  • What are sustainability-linked loans?
  • A growth story for SLLs.
  • Selecting KPIs and calibrating targets.
  • SLL characteristics.
  • SLL reporting and verification.
  • Best-practice using an example case study.

We believe companies should take a proactive approach in shaping the (SLL) market by applying best practice and experience in helping borrowers and investors understand how to effectively structure SLLs.

Endnote

  1. Source: Reorg Research, Inc., as of November 30, 2023.

 

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