Larissa's Clause

Facility Agreement Clauses Promoting Sustainability-Linked Loans within the Cement Industry

A set of sustainability-linked clauses to be incorporated into Facility Agreements: including covenants, representations and a ratcheted interest rate linked to emissions reduction performance. 

Jurisdiction: England & Wales

What this clause does

Sets sustainability targets in loans to actors in the high emitting cement industry to incentivise them to achieve dramatic reductions in emissions. 


1. Conditions Precedent

1.1 The Borrower shall have provided to the Lender the Emissions Report on or before the date falling 3 (three) months prior to the Commencement Date of this Agreement. [Note: Also to be included in the heads of terms.]

2. Representations and Warranties 

2.1 The information set out in the Emissions Report and the Emissions Reduction Measures Report are accurate to the best of the Borrower's knowledge as at the date of the relevant report.

2.2 The Borrower is on target to meet the agreed GHG Reduction Target and the Emissions Reduction Measures in accordance with the Emissions Reduction Measures Programme.

2.3 Repetition 

2.3.1 The Borrower repeats the representations in clause [2.1 - 2.2] on: 

(a) the date of each Drawdown Request; 

(b) each Drawdown Date; and 

(c) the first day of each Interest Period.

3. Interest 

3.1. Calculation of interest 

3.1.1 The interest rate shall be [x%], provided that if the Borrower is deemed to be in compliance with the Emissions Reduction Measures Programme following each review in accordance with clause [4.4] and provided that no Default is outstanding at such time, then the interest rate shall be reduced by [ ]% to a minimum rate of [ ]%.

4. Covenants 

4.1. The Borrower shall achieve the GHG Reduction Target by [date to be inserted] in accordance with the Emissions Reduction Measures Programme. 

4.2 The Borrower shall implement the following Emissions Reduction Measures in accordance with the Emissions Reduction Measures Programme: 

4.2.1 ERM 1 [Insert details of ERM]; and 

4.2.2 ERM 2 [Insert details of ERM]. 

4.3. On or before the last day of the Emissions Reporting Period, the Borrower shall provide the Lender with the following:

4.3.1 an Emissions Report; and 

4.3.2. an Emissions Reduction Measures Report. 

 [Drafting note: details of ERMs to be inserted, including which ERM and details as to what the Borrower is required to implement in order to meet that ERM.] 

4.4. Review 

4.4.1 The Borrower’s performance against its selected Emissions Reduction Measures shall be independently verified on [an annual basis] by a Climate Professional, at the Borrower’s cost. 

4.4.2. Within [ ] days of receipt by the Lender of the Emissions Report and the Emissions Reduction Measures Report, the Lender shall:

(a) notify the Borrower of any further information reasonably required by the Lender for the purpose of carrying out a review of the same, in which case the Borrower shall provide such further information to the Lender within 7 days of receipt of such request for further information;

(b) evaluate the Borrower’s performance in respect of the ERMs against the agreed Emissions Reduction Measures Programme and the GHG Reduction Target; and

(c) within [ ] days of receipt of the further information (if required) or the Emissions Report and the Emissions Reduction Measures Report if no further information is required, confirm to the Borrower (i) whether, in the Lender's opinion, the Borrower has complied with the Emissions Reduction Measures Programme, and (ii) the interest rate applicable until [insert date]. [Drafting note: parties to consider and include effect on interest rate depending on the level of progress, including inverse progress.]


Schedule 1: Sustainable Performance Target 

[Drafting note: Parties to agree, expand upon and set out in [the Agreement][this Schedule] further details of the ERMs to be achieved.] 

In order to meet the GHG Reduction Targets, the Borrower shall select at least [two] of the Emissions Reduction Measures as set out at paragraph 1.1 below, provided that if the Borrower wishes to select ERM6 they must have selected at least [two] other Emissions Reduction Measures to be achieved in priority to ERM6. 

1. Emissions Reduction Measures [Drafting note: ERMs and parameters to be agreed between the Borrower and Lender and set out in Clause 4.2 and the table below.] 

1.1. The Borrower shall implement the following ERMs in accordance with Clause 4.2 and this Schedule [ ] of the Agreement.

ERM1  Energy efficiency
  • [Improvements in the energy efficiency rating of buildings, use of fuel and/ or machinery owned or leased by the Borrower.] [e.g. before end of March 2022]
  • [Reduction of [AMOUNT %] in energy wastage through inefficiencies in cement production or the manufacturing cycle on or before [DATE]] [Drafting note: Parties are to agree as to how this is to be measured]
ERM2Products greenhouse gas emissions
ERM3Renewable energy
  • [Increases in the amount of renewable energy generated or used (for example, entering into Virtual Power Purchase Agreements to source renewable energy) by the Borrower by [AMOUNT] on or before [DATE].]
ERM4Direct installation and use of on-site green energy
  • [Investment in and installation of on-site green energy facilities to be used by the Borrower on or before [DATE].]
ERM5Investment in green technology
  • [Investment in and/ or the  installation of green technology (such as Carbon Capture and Storage)  to assist with the production and manufacturing of cement on or before [DATE].] 
ERM6Offsetting/ Insetting Emissions
  • [Investment of [AMOUNT]  in external projects and/ or projects within the Borrower’s own supply chain and supply chain communities which will offset the Borrower's carbon emissions on or before [DATE]] (such as carbon capture and novel cements which act as a vehicle for carbon storage). Any external offsetting should be done through a project that has been verified in accordance with [insert name of voluntary standard*] or from a United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/  equivalent] UNFCCC mechanism] project.

* [This might include for example Gold Standard; Climate, Community and Biodiversity Standards; Carbon Neutral Protocol or Verified Carbon Standard. When selecting a standard, the parties should give consideration to the extent to which the offsets can be achieved through removals rather than reductions of Greenhouse Gas Emissions, be transparently and correctly accounted for, with a low risk of non-additionality, reversal, and creating negative unintended consequences for people and the environment, in accordance the Oxford Principles for Net Zero Aligned Carbon Offsetting.]


Loan Market Association, Green Loan Principles: Guidance (May 2020).


Actual Total Emissions means the total GHG Emissions caused directly or indirectly [by [the Borrower]][in connection with [insert details of cement plant]] over the relevant Emissions Reporting Period expressed as a Carbon Dioxide Equivalent (CO2e), as verified by a Climate Professional.

Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure used by [the UN’s Intergovernmental Panel on Climate Change (IPCC)] [in industry] to compare the emissions from various Greenhouse Gases (GHGs) on the basis of their global warming potential over a specified timescale in order to express Actual Total Emissions that consist of different GHGs as a single number.

Climate Professional means an independent, unconnected third party with no conflict of interest that is an appropriately qualified [environmental, sustainability/ net zero] consultant or climate scholar/ scientist who has the fundamental skills and experience to diligently, competently and professionally, perform an audit of Actual Total Emissions, as approved by the Lender.

Emissions Reduction Measures or ERM means the emissions reduction measures set out in Schedule [ ] to this Agreement.

Emissions Reduction Measures Programme means the programme for implementing the Emissions Reductions Measures, including milestones, related milestone dates and respective interest rates.

Emissions Reduction Measures Report means a yearly report provided by the Borrower to the Lender containing information in respect of the Borrower's performance in meeting the ERMs for the preceding Emissions Reporting Period, as well as the Borrower’s forecast and plans for progressing and meeting the ERMs in the next Emissions Reporting Period, as verified by an Climate Professional.

Emissions Report means a written report setting out the Actual Total Emissions for the relevant Emissions Reporting Period, the Projected Total Emissions for the next Emissions Reporting Period, and the emissions forecasted to be produced [per annum] [over the lifecycle of the Project] [by [insert details of cement plant] over the next [ ] years], as verified by a Climate Professional.

Emissions Reporting Period means each period of twelve months commencing on the date of this Agreement and each anniversary of that date throughout the [term of the Loan].

GHG Emissions means emissions of Greenhouse Gases, each expressed as a total in units of Carbon Dioxide Equivalent (CO2e).

Greenhouse Gases (GHGs) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and as specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) [or otherwise specified by the UNFCCC at the date of this agreement]. [These GHGs are currently carbon dioxide (CO2 ), methane (CH4 ), nitrous oxide (N2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6 ) and nitrogen trifluoride (NF3 ).]

GHG Reduction Target means reducing or offsetting the emission of Greenhouse Gas Emissions, as reported in the Emissions Report, by [●]%.

Projected Total Emissions means an estimate of total emissions in respect of the relevant Emissions Reporting Period.


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