Lenders and lawyers are also considering clauses to trigger a default, which requires immediate repayment, if a borrower is deemed to have reneged on sustainability commitments.Īlready appearing in some private deals, such a clause 'provides more teeth' but could scare away more borrowers, said David Milligan, partner at Norton Rose Fulbright. I've not seen that accepted but that's what some banks are pushing for,' he added. 'That would give lenders significant latitude to say let's get round the table and renegotiate.

They are broadening definitions of a 'sustainability amendment event' too, which was traditionally invoked if an acquisition or disposal altered a firm's sustainability profile.īeard said this is being stretched to include regulatory change, business strategy shifts and 'any other event' which banks believe materially impacts sustainability goals. They are also insisting on the right to remove the SLL label for a 'severe controversy', and are using untested language such as the company or its products having an 'adverse impact' on the environment, the borrower's social principles or governance, said Elliot Beard, a partner at Simmons & Simmons. 'SEVERE CONTROVERSY'īanks have responded by including more penalties in SLLs that raise the borrowing cost if a company misses targets. The FCA said banks' remuneration incentives to hit ESG financing targets may have created potential conflicts of interest, encouraging them to accept weak corporate targets. Others are first 'looking at structures more closely', said Credit Agricole CIB's Head of European Corporate - Sustainable Investment Banking, Pascale Forde Maurice.īritain's Financial Conduct Authority (FCA) warned in June of 'market integrity' concerns, including weak incentives, potential conflicts of interest and unambitious goals. The banks' tougher standards are discouraging some borrowers from using SLLs entirely, bankers and lawyers told Reuters.

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