Greg Brown, a London-based partner in Allen & Overy’s banking practice, says he’s seen a surge in clients asking for new legal clauses in SLL documentation. Such add-ons are designed to let lenders strip the “sustainability” claim from a loan. So-called declassification provisions mean bankers can just book what had been an SLL as a normal loan, should they subsequently realize the product doesn’t actually merit an environmental, social or governance label.
Bankers servicing one of the world’s biggest ESG debt markets are now actively seeking legal protections to guard against the potential greenwashing allegations that may be ahead.
In the handful of years they’ve existed, sustainability-linked loans have mushroomed into a US$1.5 trillion market. SLLs let borrowers and lenders say that a loan is tied to some environmental or social metric. But the documentation to back those claims generally isn’t available to the public, nor is the market regulated. Lawyers advising SLL bankers say the reputational risks associated with mislabeling such products are now too big to ignore.
