LSTA Issues Additional Guidance for Social Lending and External Reviews Finance & Banking


United States: LSTA issues additional guidelines for social loans and external reviews

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In recent years, the interest in Environment, Social and Governance (“ESG“) financing has exploded, leading to the growth of several financial products focused on this market, including sustainability-linked lending (“SLL“), which incorporates price reductions when the borrower achieves key sustainability performance targets in its operations, green lending (“Green loans“), which require loan proceeds to be used for specific green purposes and social loans (“Social loans“), which require loan proceeds to be used for specific social purposes.

Following the rise of ESG financing, the Loan Syndications and Trading Association (“LSTA“) has developed guidelines for lenders to use when offering SLLs, Green Loans and Social Loans. Known respectively as the Sustainability Lending Principles, Green Lending Principles and Social Lending Principles (collectively, the “Principles“) the Principles identify the key elements of SLLs, green loans and social loans and provide a framework to further define the recommended or required components. One of these components is the engagement of an independent external reviewer to review and verify the ESG compliance of the SLL, Green Lending or Social Lending, rather than relying solely on information, representations and certifications provided by the borrower.Although the Green Lending Principles and the Social Lending Principles recommend obtaining external reviews and that the principles of sustainability-linked lending include an external review as a required element of an SLL, there remain inconsistent approaches in the market regarding when external reviews should be used and how frequency, scope and content required. , and External Reviews of Sustainability-Related Lending (the “Verification Guide“) in addition to the verification elements set out in the Principles.

At the same time, the LSTA also published its Guidance on Social Loan Principles (the “SL orientation“), with the aim of providing additional information and clarification on the principles of social lending and the application and use of social lending in debt markets.

This alert provides a high-level summary of the additional guidance issued by the LSTA and the implications it may have on ESG debt products.

Read the full article here.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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