March 27, 2025 - Yesterday, the LSTA, Loan Market Association (the “LMA”) and Asia Pacific Loan Market Association (“APLMA”) (collectively, the “Associations”) published updated versions of the Green Loan Principles, Social Loan Principles, Sustainability-Linked Loan Principles (the “Principles”) and related Guidance (here, here and here, respectively) (the “Guidance”, and, together with the Principles, the “Frameworks”). The documents were last updated in 2023. These amended versions reflect market consensus, as reached through the sustained engagement and discussion of a dedicated Task Force of financial institutions, law firms and external review providers, as well as the broader committees of the Associations. As in past revisions, the 2025 Frameworks seek to uphold the global applicability of the standards and reflect market best practices.

As a general note, the primary focus of the revisions was to clarify compliance with the Principles, and market participants are aided in this regard with a new inclusion of an “Interpretation of Terms.” Other key accomplishments of the updates include more comprehensive alignment with ICMA’s Green, Social, and Sustainability-Linked Bond Principles, where applicable, and the removal of the 2023 “grandfathering” language, which created a measure of uncertainty for market participants.  Notwithstanding this modification, the Associations are comfortable that parties will continue to apply the Principles in a manner that promotes the integrity of the labeled loan market.

Below is a non-exhaustive summary of some of the other key updates reflected in these final 2025 versions:

• Use of Proceeds Structures (Green and Social Loan Principles and related Guidance)
  • The Project categories have been revised to reflect the evolution of the market with respect to these instruments, although the Associations acknowledge these cannot be comprehensive given constant market evolution.
  • In some instances, the changes are not substantive but provide clarification on key points. (This applies equally to the revised Guidance for these instruments, which now includes additional Questions and Answers to reflect market changes and refer to, or account for, the universe of new sustainable finance form documents the Associations have produced to date.)

• Sustainability Linked Loan Principles and related Guidance
  • Refinements have been made to highlight that the purpose of the sustainability-linked loan instrument (“SLL”) is to support transition to more sustainable business practices. Therefore, the term “transition” should not be circumscribed to “climate transition”.
  • While in the current sustainable finance market, margin ratchets are the hallmark feature of SLLs, they are not the only financial characteristic of these instruments. Amendments to the Principles thus account for the emergence of other structural characteristics, similar to those in the bond market.
  • The new version of the Guidance provides enhanced transparency on the guardrails surrounding recommendations and optionality in the Principles, including the setting of annual targets and the utilization of “sleeping” SLLs.
  • The documentation now makes clear that borrower information does not need to be verified anew for purposes of the Sustainability-Linked Loan Principles where it has been previously verified, for instance, as part of a borrower’s public annual reporting or regulatory submission.
  • Finally, there should not be daylight between an SLL and a borrower’s sustainability strategy. To achieve this, a borrower should repurpose the work already completed in the sustainability space to better inform and evidence its financing options.

The LSTA, alongside its global counterparts, is thrilled to offer these updated Frameworks to an ever-evolving market and will continue to stay abreast of developments in the labeled loan space.

For more information, please contact Elizabeth Yazgi.