Loan Market Association Publishes Green Loan Terms, Smoothing Path for Green Finance in 2025

Recent Green Publications
On January 9, 2025, the LMA launched its Green Loan Terms (Green Term Sheet). The Green Term Sheet accompanies the Draft Provisions of Green Loans (Green Provisions), which were published in November 2024. The Green Provisions build upon the Green Loan Principles published in 2018 and updated in 2023. The Green Provisions are intended to be used with the LMA’s standard form for multicurrency term and revolving credit facilities and are a welcome addition to the LMA’s arsenal of sustainable finance publications, building on the Draft Provisions for Sustainability-Linked Loans that was published in 2023 (SLL Provisions).

Two of the key differences between the Green Provisions and SLL Provisions are the use of proceeds and the margin. In the SLL Provisions, margin is explicitly tied to the borrower’s performance of select key performance indicators, whereas the Green Provisions make no recommendation on margin adjustments, implying that the standard LMA wording is sufficient. In contrast, the Green Provisions strictly limit the use of proceeds to the financing or refinancing of green projects, and the Green Term Sheet encourages parties to decide the exact definition of those green projects as a key part of negotiations, while the SLL Provisions allow a flexible purpose in line with the standard form investment grade documents. The Green Term Sheet (and the Green Provisions) also focuses on the requirements for reporting, monitoring and evaluating the use of proceeds. 

As with all LMA standard form documents, the conditions need to be tailored for the specific transaction. Nevertheless, the Green Provisions have been well-received by market participants with the hope that a consistent market practice will soon be developed. Prior to having an established market standard, banks had been interpreting and applying green-lending criteria on an institution-by-institution basis, and uniformity across the sector was lacking. The Green Term Sheet is a welcome addition to the LMA’s sustainability guidance, ensuring alignment with best market practices from the initial stages of negotiation. The recent LMA guidance is a step towards further harmonizing green lending, but the LMA acknowledges that market practice is still developing and will continue to update their guidance based on evolving market trends.

Conclusion
A few years ago, the buzz words in the financial industry were “ESG” and “transition finance.” Global political and social developments over the last 12 months have made participants step cautiously around each of the components of “E,” “S” and “G.” Social and governance issues have become politicized, and borrowers are more concerned than ever that their environmental initiatives may inadvertently be classified as greenwashing. This heightened sensitivity has left businesses walking a fine line with transition finance. However, the hope is that by now most businesses have successfully transitioned or are progressing well on their transition pathways, and the industry can place a renewed emphasis on green finance. With clearer guidelines, specific key performance indicators and market standardization, banks can enter 2025 with confidence, well-equipped to continue expanding their green finance portfolios, and borrowers can start negotiations with a clearer understanding of the market expectations surrounding green lending.

For further information and articles about greenwashing, please check out some of our other publications, such as The Carrots and Sticks of Environmental Social Governance (ESG) Performance: How to Get Your ESG Carrots, “Groundbreaking” SEC Complaint Accuses Oil Major of Greenwashing Its Investment Reporting — Gravel2Gavel Construction & Real Estate Law Blog — February 28, 2023 or Amid Rise of Greenwashing Litigation, Guidance May Become Law.