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Sustainability-linked loans

Sustainability-linked loans concern working capital connected to the borrower’s sustainability targets, for example, energy-efficiency enhancements, reduced transportation or reduced number of accidents. If the borrower reaches their targets, they are rewarded with a lower interest rate.

An increasing number of companies want to link their financing to ambitious sustainability targets. Sustainability-linked loans concern working capital used to promote the borrower’s efforts with transitioning their operations to become climate-neutral and to achieve important operational social targets. Unlike Green loans and Social loans in which the amount is earmarked for a specific project, this type of loan is connected to the entire company’s sustainability targets. These could be, for example, to reduce energy consumption in their own production facilities.

Working capital is the most common type of company loan used to invest in a new facility, increase production, complete an acquisition or broaden a company’s financial base.

The loan does not need to be connected to an export transaction, however, there must be a direct or indirect link to exports in the company’s operations or a clear connection to Sweden’s transition. This means that suppliers to exporting companies are also eligible for loans.

“Offering sustainability-linked loans is a way for us to guide financing toward tangible and measurable targets. This is a win-win for all parties, but particularly the climate.”

Jens Hedar, Head of Client Relations at SEK

Criteria for sustainability-linked loans

  1. The borrower has set sustainability targets during the loan’s tenor.
  2. The targets must be ambitious, aligned with the Science Based Targets, or in line with global or national regulations.
  3. The targets must be meaningfully connected to the borrower’s operations and be accomplished by connecting the targets to completed materiality analyses.
  4. Sustainability targets and outcomes must be made public.
  5. The outcomes must be credible, for example, by being included in an audited sustainability report.
  6. Financial incentives, meaning interest discounts connected to the targets, must be achieved.
  7. There must be targets and CPIs connected to loan agreements.
  8. The targets must be evaluated by an independent party or against external grading criteria.