I attended the LMA's excellent Sustainable Finance conference in London yesterday. It wasn't just an opportunity for people to dust off their green dresses and ties. It was a chance to reflect on the progress made in sustainable finance over the past 12 months, to consider the challenges in this space, and to look ahead to the future.
A few key takeaways from me:
1. SLL volumes have slumped in Q3...a blip?
The data showed a very significant drop in volumes of sustainability-linked loans in Q3 of 2023. The general feeling was that this is a blip rather than a trend. The direction of travel for sustainable finance is clear, and the momentum is strong. What it probably reflects is a brief pause in proceedings while market participants consider the strengthened SLL Principles. If that's the case, I view it as a positive. It shows that banks and borrowers alike a taking these issues really seriously, and are making sure that any financings fall squarely within the core components of the LMA's SLL Principles.
2. The impact of SLLs
I've sometimes wrestled with the question of the extent to which SLLs are making a positive impact to people and planet. I've got myself comfortable that, at the very least, SLLs are a useful tool to encourage companies that haven't thought much about ESG to develop and implement a sustainability strategy in their businesses. However, Arash Mojabi of ING made the interesting point that, for traditional loans, bankers liaise with treasury teams. For an SLL, treasury teams will need to liaise with sustainability teams, senior management, legal and other departments. So SLLs are a way of integrating sustainability within a business, rather than being in a silo.
3. People power
Governments and regulators act when it's clear that there is public support for an issue. The choices that we all make as consumers will help to send a message to governments and regulators that they need to step up their actions on sustainability.
4. Prodigious workload of the LMA
During the conference there was an overview of the work the LMA has done on sustainable finance over the past 12 months. It was a long and impressive list, which is testament to the hard work of Gemma Lawrence-Pardew and Hannah Vanstone of the LMA, and the very many market participants who are part of the various working groups. Top of the list of achievements must be the publication of the SLL model provisions in May this year, which has really helped to streamline negotiations.
*shameless plug alert* Also mentioned were the two articles we co-authored with the LMA earlier this year on SLLs in aviation and shipping. Well worth a read!
5. Nature
The final panel discussed the role of the loan market regarding nature. There's a lot of work still to do, but it will be fascinating to see if/how biodiversity and natural capital become integrated into loan agreements.
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