A Sustainability Linked Loan is a loan that encourages borrowers to achieve ambitious sustainability performance targets (SPTs). Specifically, it is a loan that: (1) organizes the relationships between sustainability objectives and SPTs set out in the borrowers' comprehensive social responsibility strategies; (2) measures the degree of improvement in sustainability by presetting appropriate SPTs; and (3) ensures transparency through post-loan reporting on them.

Main Characteristics

  1. The borrower takes action towards ambitious SPTs on sustainability, and the degree of improvement is linked to the terms of financing.
  2. Unlike Green Loans, proceeds of Sustainability Linked Loans are not limited to specific projects.
  3. Transparency is secured through post-financing reporting on these matters.

Benefits of Sustainability Linked Loans

Borrower's Benefits

1Enhancing Sustainability Management
The use of Sustainability Linked Loans establishes ambitious SPTs for businesses, which will be strongly motivated to achieve them, and can lead to the development of, or build on the initiatives already undertaken on, governance, strategies, and risk management systems for sustainability within enterprises and other organizations. This also helps satisfy the ESG information disclosure requirement placed by the Task Force on Climate-related Financial Disclosures (TCFD) and others. Furthermore, these efforts will lead to an improvement in the medium- to long-term ESG evaluation of the issuer, which will in turn contribute to an increase in corporate value.
2Acquisition of public acceptance through positive appeals regarding the promotion of sustainable economic activities in environmental and other aspects
By raising funds through Sustainability Linked Loans, enterprises and other organizations can demonstrate that they are active in promoting sustainable economic activities in environmental and other aspects, which could possibly earn them public approval.
3Incentives in terms of lending conditions for improving sustainability performance
Sustainability Linked Loans incorporate incentives, such as interest rates that fluctuate in conjunction with SPTs, to help Borrowers improve their sustainability performance. A Borrower, by upgrading its sustainability management, may be able to raise funds on relatively favorable conditions from financial institutions that select ESG loans.
4Strengthening the fund procurement base by building relationships with new lenders
By getting Sustainability Linked Loans, disclosing relevant information and ensuring transparency, new relationships with financial institutions that favor ESG loans may be established and the funding base may be strengthened.

Lender's Benefits

1Loans as ESG loans
Sustainability Linked Loans provide a stable cash flow unless borrowers default on the debt. Lenders can show that they are supporting sustainable economic activities, which can lead to social support, while obtaining stable cash flows.
2Motivating Borrowers to improve their sustainability performance
By financing in the form of Sustainability Linked Loans, lenders may motivate Borrowers to enhance their sustainability management over the lending period, which will contribute to the realization of a sustainable society.
3Deep dialogue on sustainability with Borrowers
Deeper dialogues with Borrowers on business issues through SPTs and sustainability objectives can lead to multi-tiered relationships and business opportunities, such as providing solutions that meet Borrowers' needs.

Environmental Benefits

1Contribution to global environmental conservation
The widespread use of Sustainability Linked Loans will internalize incentives for Borrowers to upgrade and maintain sustainability management and expand the introduction of private sector funds for projects related to sustainable economic activities in environmental and other aspects, thereby contributing to the reduction of greenhouse gas emissions and the prevention of deterioration of natural capital.
2Raising awareness of individuals who entrust their funds to financial institutions that provide Sustainability Linked Loans
As Sustainability Linked Loans become more widespread, financial institutions that are the trustees of assets will be motivated to more actively provide Sustainability Linked Loans through raising the awareness of individuals who deposit money in financial institutions that provide Sustainability Linked Loans.
3Contributing to solving social and economic issues through promotion of Sustainability Linked Loans
Promoting projects related to economic activities that contribute to the formation of a sustainable society through the diffusion of Sustainability Linked Loans will contribute to the formation of a sustainable society, such as reducing energy costs, revitalizing regional economies, and improving resilience in times of disaster.