A European bank considers investing in an offshore wind farm project. A bank ESG analyst assists in the origination and execution of green and sustainable finance transactions to finance the project. The analyst recommends a loan to finance the project by gathering related materials on sustainability-linked loans (SLLs), green loans, and corresponding market trends.
Which of the following loans is the analyst likely to recommend?
A European bank considering an investment in an offshore wind farm project would likely benefit from a Sustainability-Linked Loan (SLL) because the total volume of SLLs has exceeded that of green loans over the past 5 years. This indicates a growing trend and acceptance in the market, which may also provide favorable terms and conditions due to the competitive nature of such financial instruments. Additionally, SLLs are tied to the sustainability performance of the borrower, allowing for potentially lower borrowing costs if sustainability targets are met.
5.3.3 “Despite the fact that the Sustainability-Linked Loan Principles, which set guidelines for the market, only launched in 2019, that year already witnessed more in SLL volume (around USD 90 billion) than the green loan market, a more mature labeled loan category. ”