Fulfill commitments to lenders through credible external oversight of your ESG performance reporting.
More than ever finance markets are focused on ESG performance, and sustainability-linked loans (SLLs) are now a popular way for institutional lenders to encourage the achievement of sustainability targets. Independent external verification of relevant sustainability performance reassures lenders that progress reports are accurate, and is required for any SLL aligned with the Sustainability-Linked Loan Principles (SLLP).
In short, an SLL is any loan instrument (e.g., a line of credit or revolving credit facility) tied to selected borrower key performance indicators (KPIs). Lenders distribute SLLs to encourage meaningful improvement to the borrower’s ESG impact profile.
Meaningful targets that incentivize sustainability
Before an SLL is approved, borrowers and lenders need to agree upon material KPIs that can be clearly defined and quantified. Once appropriate performance targets have been calibrated and an SLL issued, borrowers need to share regular updates on progress toward agreed upon targets with the lender. This is best done through the transparent disclosure of relevant KPIs in annual reports.
Most SLL lenders (and all lenders aligned with the Loan Market Association’s SLLP) require issuers to obtain external verification of reported KPI performance. To ensure the process is transparent, it is recommended that the output of this verification work (such as an assurance statement) is made publicly available.
ERM CVS has provided independent assurance for ESG KPIs and sustainability reporting for over 25 years, and our ongoing work includes the assurance of KPIs linked to financing, such as sustainability linked loans and bonds. Our Second Party Opinion (SPO) work in this context provides an opinion on a borrower’s alignment with relevant principles such as the Green Bond Principles or Green Loan Principles.
Our multidisciplinary team has the expertise to provide independent assurance on performance toward a wide array of ESG targets including GHG emission, health and safety, and diversity.