Sustainability Linked Loan Overview Expectations for Sustainability Linked Loans

The Borrower of Sustainability Linked Loans should clearly inform the lender that the sustainability objectives set out in its comprehensive social responsibility strategies are consistent with the SPTs.

Regarding the SPTs, borrowers and lenders should negotiate on a transaction-by-transaction basis and establish what is appropriate to measure borrowers' sustainability performances. The SPTs should be ambitious and meaningful in relation to the borrower's business materiality (important tasks) and should be tied to improved borrower sustainability in relation to preestablished SPTs benchmarks. In each of the SPTs, quantitative measures must be established based on the level of recent performances. It should be noted that ambitious and meaningful items need to be understood in their entirety of both positive and negative impacts expected by the borrower's business, and are those that have a large positive impact or greatly improve negative impact related to sustainability, and should be comprehensively judged based on the degree of achievement difficulty.

It is important for the SPTs to be objective and the borrower should seek third parties' opinions on the appropriateness of its content. If a third party is not sought, the borrower is strongly encouraged to show or develop in-house expertise to verify the content of the SPTs.

The borrower should report to the lender(s) at least once a year so that updates on the achievement of SPTs, such as ESG ratings, by external agencies where feasible, can be provided. For a borrower to gain public approval by expressing that the procured loans are Sustainability Linked Loans, they need to ensure transparency. For this reason, borrowers should generally disclose SPTs information when stating that they use Sustainability Linked Loans.

【External Review】
It is recommended that borrowers utilize an External Review if they need an objective assessment of their responses to the items described in 1. to 3. above in relation to the framework of the Sustainability Linked Loans. For Sustainability Linked Loans in which information on the SPTs is not disclosed or in which information on the SPTs is not audited or accompanied with report of guarantee, it is strongly recommended that the borrower obtain external reviews of the progress status for the SPTs.

【Internal Reviews】
If External Reviews are deemed unnecessary, it is strongly recommended that internal expertise be presented or developed, including for the self-assessment of SLL frameworks and SPTs performance calculations. In the case of self-assessment by the borrower, the borrower should explain that to the lender(s) and, after developing self-assessment processes, explain with sufficient clarity about its internal expertise. When appropriate, the borrower should disclose that to the public. Finally, if requested, the borrower should report to the lender(s) about the results of their self-evaluation.

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