LMA, APLMA and LSTA release revised sustainable finance principles

Chris Williams, Partner Banking & Finance comments:

“The 2025 updates to the sustainability-linked loan, green loan and social loan principles and guidance are not the significant updates we saw in 2023. The latest updates build on the 2023 principles, elaborate on points of market practice (with the addition of new ‘FAQs’ in the guidance) and seek to align concepts and terminology with the wider market. There is also greater clarity on what is mandatory and what is recommended. Although we don’t expect to see material documentation changes as a result of the updates, they are helpful for market participants wanting to use sustainable finance products.”

Our update on the 2023 changes: LMA, APLMA and LSTA release revised sustainable finance principles

Five things that have changed

1. Language and interpretation

Each set of Principles now contains an ‘Interpretation of Terms’ section at the start setting out the meanings of “shall”, “should”, “may” and “can”. “Shall” indicates a mandatory requirement, “should” a recommendation, “may” an optional course of action and “can” possibility or capability. By way of example the GLP previously said that a designated Green Project should provide clear environmental benefits, now that should has changed to shall. There isn’t a material change to any of the Principles as a result of this interpretation language but it does facilitate all market participants being on the same page about what must be done to comply with the Principles and what’s recommended or a nice to have. We know that the Principles are intended to support the integrity of sustainable finance products and this is a helpful addition to ensure that all loans being labelled in accordance with a set of Principles are meeting the same mandatory requirements.

2. Environmental objectives

The GLP previously referred to climate change mitigation and adaptation as environmental objectives and in the latest update climate change resilience has been added. This aligns the GLP with language used by the UNFCCC as we must both adapt to climate change and also build resilience to climate change events.

For biodiversity objectives, the GLP has expanded from biodiversity conservation to biodiversity restoration, conservation and enhancement. In the UK this aligns with the policies on Biodiversity Net Gain, which are not focused only on the conservation of biodiversity but also the creation and improvement of natural habitats.

3. Proceeds or an equivalent amount

Both the GLP and the SLP now refer to the net proceeds of the loan or “an amount equivalent to the net proceeds” being applied to green or social projects (and credited to a separate account or tracked in an appropriate manner). An explanation isn’t given for this change but it could potentially provide greater flexibility for market participants without compromising the management of proceeds component of those Principles.

4. Terminology around greenwashing

Previously the SLLP referred to greenwashing occurring in three key ways. Now the SLLP updated guidance makes it clear that greenwashing can arise in a number of aspects including through KPIs that are not material and core to the business of the borrower; through SPTs that are not sufficiently ambitious or meaningful; or through inaccurate, insufficient or lack of monitoring, reporting, measuring, benchmarking and/or disclosure of performance against SPTs. There is also a language change from ‘avoiding greenwashing’ to ‘mitigating greenwashing risk’, reflecting the complexities around greenwashing. External communications must be clear, fair and not misleading, where previously the requirement was that they were accurate.

Two helpful new ‘FAQs’ are whether a third party ESG rating can serve as a KPI for a sustainability-linked loan and where “green” CapEx can be used as a KPI.

The SLLP guidance now also makes it clear that where information has been verified as part of a borrower’s (public) annual reporting or regulatory submission, it need not be verified again for the purposes of the SLLP, perhaps intending to encourage borrowers with more developed sustainability strategies to consider the use of a sustainability-linked loan product without an additional verification burden.

5. Are there additional principles for Blue Loans or Sustainability Loans?

The GLP and SLP state that loans that intentionally mix eligible green and social projects can be referred to as “sustainability loans” (although will need to meet the core criteria of the GLP or the SLP, as applicable).

We also now have guidance on the difference between green loans and blue loans, addressing transactions being promoted as “blue loans”. A blue loan is focused on the sustainable use and protection of water resources but will also be a “green loan” assuming it aligns with the four core components of the GLP. The implication being that a loan cannot be “blue” unless it is also “green”. This guidance applies to other thematic green loans, such as climate loans, energy efficiency loans or biodiversity loans. They are all sub-sets of green loans and there are not separate principles for those loans. 

What’s next?

The GLP continue to encourage borrowers to consider alignment to local taxonomies for green assets, where applicable. The EU Green Taxonomy has been perceived as complex by the market and the EU Commission is seeking to simplify that taxonomy to promote its relevance as part of the ‘Omnibus’ package intended to simply EU sustainability reporting and due diligence obligations.

In the UK, the UK Government has consulted on the implementation of a green taxonomy and, as add 3 April 2025, we are waiting for the outcome of that consultation.

Further reading on sustainable finance

For further guidance on sustainable finance, please visit ESG in financial services | Eversheds Sutherland

For further details on the Omnibus package you can read our update at: EU: Commission publishes Sustainability Omnibus | Eversheds Sutherland