The world of finance is facing ever greater pressure to ensure that businesses make environmentally friendly investment decisions. Most recently, the UK Government published a roadmap to achieving mandatory climate change disclosure requirements by 2025 under its ambitious Green Finance Strategy. Companies themselves are also taking the initiative to lead the charge in green finance, including big names such as BlackRock, which has pledged to put sustainability at the heart of their investment strategies.
The market for climate and socially conscious investment has huge potential, with investment in ESG-oriented funds topping US$1 trillion this year. However, both debt and equity investment needs to accelerate further in order to meet UN Sustainable Development Goals and the UK's Net Zero emissions target.
A number of frameworks and initiatives have been put forward by governments and industry bodies to provide greater clarity for lenders and borrowers. However as yet, there is no one definitive guide that can ensure certainty that loan facilities will be managed in a sustainable way.
The EU has published a taxonomy for sustainable activities to guide investors as to what investments are "green" and what are "brown". Similarly, the Task Force on Climate-related Financial Disclosures (TCFD) has sought to assist investors by standardising companies' disclosure of climate risks. Guidance particular to loans has also been written, including the Loan Market Association's (LMA's) Green Loan Principles, and Sustainability-Linked Principles. However, none of these frameworks yet provide clear objectives that can be inserted into standard financing agreements.
The Green Loan Starter Pack and Sustainability-Linked Loans Clauses can be used in traditional financing documents to help clarify expectations for both borrowers and lenders as to how money can be spent in a green and sustainable way.
Clyde & Co is proud to be assisting clients in achieving their Net Zero goals by, among other things, adopting these clauses into their contracts. Please reach out to me or one of our climate change experts if these clauses are of interest.
This post is part of a series of short updates summarising the precedent clauses drafted in the course of collaborative hackathons organised by The Chancery Lane Project. Clyde & Co held its own hackathon in partnership with The Chancery Lane Project in July 2020, and has taken a leading role in the Big Hack, another hackathon organised centrally by The Chancery Lane Project throughout autumn 2020.