Green Loan “Starter Pack”

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What this clause does

Market standard wording to make finance accessible to borrowers unfamiliar with green loans, increasing the financing of eligible green projects. Designed as a base to be tailored in commercial and legal negotiations, it is widely applicable rather than transaction specific. Lenders will benefit from a clear monitoring framework to prevent greenwashing.

Clauses

[Drafting note:Using this clause in Loan Market Association form documents: While this clause can be used in recommended form documents published by the Loan Market Association (LMA), it has not been endorsed by, or produced in conjunction with, the LMA. Using and reproducing LMA documents generally are subject to certain restrictions, specifically they may only be used by LMA members for preparing and documenting agreements relating to transactions or potential transactions in the loan markets. Further information is available on the LMA website - www.lma.eu.com.]

PRINCIPLE ONE: USE OF PROCEEDS

1.1 Typical Clause to Review: Purpose (Clause 3 of the LMA Form)

3. Purpose

3.1 The Borrower shall apply all amounts borrowed by it under the Green Facility towards:

(a) The financing of the Eligible Green Project in accordance with the Green Loan Framework; and

(b) Payment of the Green Project Costs (other than periodic fees) [as described in the Funds Flow Statement].

PRINCIPLE TWO: PROJECT EVALUATION AND SELECTION

1.2 Typical Clauses to Review: Conditions to Utilisation (Clause 4 of the LMA Form), Part IB of Schedule 2 (Conditions Precedent) of the LMA Form and/ or Conditions Subsequent (Clause 28.41 of the LMA Form)

3. Finance Documents

(a) The Green Loan Framework executed by the Parent and any other member of the Group party thereto.

7. Other Documents and Evidence

(a) A certificate of the Parent (signed by a director) detailing the estimated Green Project Costs and certifying that the Green Project Costs have been applied or will[, simultaneously with the first utilisation under this Agreement] be applied for the same purposes as the proceeds of the Green Facility.

(b) A copy of the Borrower’s and/ or the Group’s environmental sustainability strategy materials (to the extent not already included in the Green Loan Framework).

(d) [The Certification].

PRINCIPLE THREE: MANAGEMENT OF PROCEEDS

1.3 Typical Clause to Review: Representations (Clause 25 of the LMA Form)

25.34 Green Loan Representations

(a) The Green Loan Framework shall set out:

(i) the environmental sustainability objectives of the Borrower in respect of the Eligible Green Project including how the Eligible Green Project furthers the Borrower’s achievement of its Net Zero Target (and of any applicable interim targets), the GHG Emissions reductions estimated to be linked to the Eligible Green Project and plans for offsetting those emissions;

(ii) the process by which the Borrower determines how the Eligible Green Project aligns with the Eligibility Criteria; and

(iii) any related eligibility criteria, including, if applicable, exclusion criteria, or any other process applied to identify and manage potentially material environmental risks associated with the Eligible Green Project.

(b) Save as disclosed in writing to the Agent and the Arranger prior to the date of this Agreement the factual information provided by the Borrower as set out in the Green Loan Framework is true and accurate in all material respects as at the date it was provided or (as the case may be) as at the date the information is expressed to be given.

(d) The Borrower has an established process to identify and manage potentially material environmental risks associated with the Eligible Green Project.

25.35 Environmental Representations

(a) It has not been convicted for material violations of any Environmental Law.

(b) No material Environmental Claim has been commenced or threatened against it.

(c) All information provided by it for the purposes of environmental due diligence by the Lenders is true and accurate in all material respects as at the date such information was provided and is not misleading in any material respect.

1.4 Typical Clause to Review: General Undertakings (Clause 28 of the LMA Form)

28.42 Green Loan Undertakings

(a) The Borrower shall comply with the provisions of the Green Loan Framework in all material respects.

(b) The Borrower shall not amend or agree to amend the Green Loan Framework in a way which is materially adverse to the Lenders or which could be reasonably considered to undermine Paris Agreement Goals.

(c) The Borrower shall ensure that the proceeds of the Green Facility are credited to a Deposit Account and notified to the Agent and withdrawals from such account are notified to the Agent in accordance with the provisions of Clause 26 (Information Undertakings) by the Borrower.

(d) The Borrower shall maintain policies and procedures to enable it to track the allocation of funds towards the Eligible Green Project and to monitor and evaluate the Eligible Green Project on an on-going basis, in accordance with the Green Loan Framework.

1.5 Typical Clause to Review: Group Bank Accounts (Clause 28.34 of the LMA Form).

28.34 Group Bank Accounts

(a) The Borrower shall ensure that [by no later than the Closing Date] [within [number of] days of the Closing Date] a Deposit Account shall be opened and maintained in the name of the Borrower and shall be designated as a Deposit Account.

(b) The Borrower will allocate the proceeds of the Green Facility to the Deposit Account for application in accordance with the Green Loan Framework.

(c) Proceeds of the Green Facility not required to be immediately applied in accordance with the Green Loan Framework shall not be invested in any GHG intensive, highly polluting or non-renewable energy [intensive] projects. Such unallocated proceeds may:

(i) be invested in or refinanced by any [other green financing instruments][green bonds] issued in accordance with [third party green standards]; or

(ii) be invested in money market instruments with a credit rating of [applicable rating], until such time as they are applied to the Eligible Green Project in accordance with the Green Loan Framework.

1.6 Typical Clause to Review: Events of Default (Clause 29 of the LMA Form)

29.22 Green Loan Audits

(a) If the Borrower fails to comply with any of the provisions referred to in:

(i) Clause 3.1 (Purpose);

(ii) Clause 25.34 (Green Loan Representations);

(iii) Clause 26.8 (Green Loan Reporting);

(iv) Clause 28.34 (Group Bank Accounts); or

(v) Clause 28.42 (Green Loan Undertakings),

the Agent (acting on the instructions of the Lenders) may carry out any third party verifications or audits, at the cost of the Borrower, that it considers reasonably necessary to confirm that the Borrower has complied with its obligations under this Agreement.

(b) The terms of reference of any audit carried out pursuant to this Clause 29.22 shall be subject to the prior approval of the Agent (acting on the instructions of the Lenders).

(c) The findings of any audit carried out pursuant to this Clause 29.22 shall, in the absence of manifest error, be conclusive and binding on all Parties.

29.23 Declassification Events

If:

(a) any representation, warranty or statement made or given or deemed to be made or given by the Borrower relating to a Green Loan is or proves to have been incorrect or misleading in any material respect when made or deemed to be made;

(b) the Borrower fails to comply with any of the provisions referred to in:

(i) Clause 3.1 (Purpose);

(ii) Clause 25.34 (Green Loan Representations);

(iii) Clause 26.8 (Green Loan Reporting);

(iv) Clause 28.34 (Group Bank Accounts);

(v) Clause 28.42 (Green Loan Undertakings); or

(vi) Clause 29.22 (Green Loan Audits),

and if such failure to comply is capable of remedy but not remedied by the Borrower within [number of] Business Days (or such longer period as the Agent may agree in writing) of the earlier of (i) the Agent giving written notice of the failure to comply to the Borrower and (ii) the Borrower becoming aware of the failure to comply; or

each outstanding Green Loan shall be declassified as such by the Arrangers.

29.24 Consequences of Declassification

From the date on which any Loan is declassified as a Green Loan in accordance with Clause 29.23 (Declassification Events), the Borrower shall, as soon as reasonably practicable and in any event within [number of] days of notice from the Agent (acting on the instructions of the Lenders):

(a) cease representing in all internal and external communications, marketing or publications that each outstanding Loan is a Green Loan; and

(b) ensure that all material, publications and information it publishes relating each outstanding Loan no longer refers to it as a Green Loan.

[For the avoidance of doubt, any breach of this Clause 29.24 in relation to any such Green Loan shall [not] constitute an Event of Default.]]

29.25 [[No] Event of Default

The Parties hereby acknowledge and agree that:

(a) a breach or failure to comply with:

(i) Clause 3.1 (Purpose);

(ii) Clause 25.34 (Green Loan Representations);

(iii) Clause 26.8 (Green Loan Reporting);

(iv) Clause 28.34 (Group Bank Accounts);

(v) Clause 28.42 (Green Loan Undertakings);

(vi) Clause 29.22 (Green Loan Audits); or

(b) a Declassification Event,

[does not][will] constitute a Default or Event of Default, [and the Borrower shall not bear any liability to the Finance Parties as a result of the occurrence of any of the foregoing].]

PRINCIPLE FOUR: REPORTING

1.7 Typical Clause to Review: Information Undertakings (Clause 26 of the LMA Form)

26.7 Information: Miscellaneous

(a) The Borrower shall supply to the Agent promptly, upon becoming aware of them, details in writing of:

(i) any non-compliance with Clause 28.42 (Green Loan Undertakings);

(ii) any Environmental Claim against it which is current, pending or threatened; and

(iii) any fact or circumstance which may result in any Environmental Claim being commenced or threatened against it.

26.8 Green Loan Reporting

[Drafting note: Consider including requirements here to measure and report on GHG emissions linked to the project.]

(a) [The Borrower shall promptly, upon receiving the same, deliver to the Agent a copy of the certificate issued by [accredited sector specific external certification provider] (certified true by a director of the Borrower) certifying that the Eligible Green Project has been given a rating of at least [applicable rating] by [accredited sector specific external certification provider] (the Certification).]

(b) The Borrower shall from time to time at its own cost and expense supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests) any such relevant information which in the opinion of the Borrower relates to:

(i) a material change to the Eligible Green Project financed with the Green Loan;

(ii) the Green Loan Framework; and/ or

(iii) [any status of the issuance of the Certification for the Eligible Green Project,]

which, in each case, would reasonably be expected to result in a Declassification Event or the declassification of the Green Loan in accordance with the provisions of Clause 29.23 (Declassification Events).

26.9 Management Presentations

The directors of the Borrower shall hold [amount of] [meeting(s)][conference calls] with the Lenders per calendar year at such times and locations as are (a) notified in writing to the Lenders and (b) accepted by the Lenders (acting reasonably) to discuss the contents of the information provided pursuant to Clause 26.8 (Green Loan Reporting).

Schedule A (Green Loan Framework)

This Green Loan Framework sets out how the Borrower will use the Green Loan in the amount of [amount] provided by the Lenders under a facility agreement dated [date].

The Green Loan raised in accordance with this Green Loan Framework aligns with:

1. the Eligibility Criteria set out below; and

2. Paris Agreement Goals.

Eligibility Criteria*

1. Use of Proceeds

[Description of use of proceeds to be included]

2. Project Selection and Evaluation

[Description of Eligible Green Project selection and evaluation to be included]

3. Management of Proceeds

[Description of the management of the proceeds of the Green Facility to be included]

4. Reporting

[Description of the reporting of the Green Loan to be included]

The Borrower will notify the Arrangers within [number of] Business Days of becoming aware of any failure to comply with this Green Loan Framework. [The Parties acknowledge and agree that, solely as a result of failure to perform or comply with this Green Loan Framework, no Default or Event of Default will occur.]

* [Drafting note: Include in criteria 1 - 4 specific alignment with Paris Agreement Goals, as relevant. Users of this clause should incorporate the following elements within the criteria:

the concept of doing ‘no significant harm’ to other environmental objectives from the EU Taxonomy Regulation (and consider incorporating specific biodiversity related provisions);
a requirement to use the Green Loan in accordance with the principles of a just transition;
criteria for measuring and reporting any residual GHG Emissions related to the project and targets for reducing emissions related to the project (including a percentage rate of year on year decarbonisation where possible);
criteria for offsetting any residual GHG Emissions relating to the project;
any overarching organisational requirements of the Borrower related to ambitious net zero target setting, interim targets, pace of emissions reductions, governance, offsetting, just transition and climate policy engagement (lobbying activities and trade association membership), as [demonstrated in Frank’s Clause (Green Investment Obligations) and Casper’s Clause (Sustainability Linked Loans) and] outlined in TCLP’s Net Zero Checklist.]

References:

Green Loan Principles (February 2023), published by the LMA, APLMA and LSTA.

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Definitions

Certification has the meaning set out in Clause 26.8.

Deposit Account means an account held by the Borrower and designated as such in accordance with Clause 28.34.

Eligible Green Project means:

(a) debt or other financing arrangements provided by the Group to finance, refinance or invest in projects or to maintain or purchase physical assets;

(b) related and supported expenditures for projects or physical assets;

(c) physical assets or projects owned by the Borrower including but not limited to the following: equipment, machinery, infrastructure and/ or buildings in construction redevelopment, upgrades, expansion and similar asset value creation or enhancement activity; and

(d) existing and operational equipment, machinery, infrastructure, buildings or land,

in each case, to the extent such projects comply with the Eligibility Criteria.

Eligibility Criteria means the Borrower’s established process of project evaluation and selection eligibility criteria as stated in the Green Loan Framework in adherence to the Green Loan Principles.

Environmental Claim means any notice, claim, proceeding or investigation in connection with any Environmental Law and/ or Environmental Permit by any person or entity.

Environmental Law means all applicable environmental laws and regulations in the jurisdiction(s) in which the Borrower operates and conducts business, which relate to the protection and/ or violation of environmental issues.

External Reviewer means [external reviewer] or any other consultant and/ or institution with recognised expertise in environmental sustainability or other aspects of the administration of a green loan appointed as such by the Borrower with the prior written consent of the Agent (acting on the instructions of all the Lenders).

Greenhouse Gases (GHGs) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and are 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], as may be amended from time to time[, which include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), and nitrogen trifluoride (NF3).] [Drafting note: See TCLP Glossary: Greenhouse Gases (GHGs) for definition options and explanatory notes.]

Greenhouse Gas (GHG) Emissions means emissions of GHGs from all sources, categorised as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated from time to time. [Drafting note: Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol. This definition relates to organisational emissions of GHGs (distinct from contract emissions of GHG). It refers to emissions of the organisation from all sources (which include its value and supply chains). A definition of GHG emissions relating to contract emissions would attribute the GHG emissions to a party/ the parties and relate them to the activities governed by the contract in question. For different options for defining GHG Emissions, see TCLP’s drafting definitions and sample wording document in our Net Zero Implementation Toolkit.]

Green Facility means the term loan facility made available under this Agreement as described in Clause 2.1 (The Facilities) for the purposes of financing an Eligible Green Project adhering to the Green Loan Principles and that has not been declassified as such by the Lenders pursuant to Clause 29.23 (Declassification Events).

Green Loan means a loan that is made or to be made under the Green Facility or the principal amount outstanding for the time being of that loan.

Green Loan Framework means the green framework prepared by the Parent and agreed by the Agent (acting on the instructions of the Lenders) describing the Eligible Green Project by reference to the Green Loan Principles, in substantially the form of Schedule A (Green Loan Framework). For the avoidance of doubt, the Green Loan Framework does not constitute a Finance Document.

Green Loan Principles means the high-level framework of market standards and guidelines, published by the Loan Market Association together with the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA) (and with the support of International Capital Market Association), providing a consistent methodology for use across the green loan market. The Green Loan Principles are available here.

Green Project Costs means all fees, costs and expenses, stamp, registration and other Taxes incurred by the Borrower or any other member of the Group in connection with the Eligible Green Project.

LMA Form means the LMA form of Senior Multi-Currency Term and Revolving Facilities Agreement for Leveraged Acquisition Finance Transactions (Senior/ Mezzanine) dated 20 March 2020). [Available at LMA: Documents & Guidelines.]

Net Zero Target means both a reduction of the Borrower’s GHG Emissions overall and a removal of GHGs associated with the implementation of an Offsetting Strategy to address the Borrower’s Residual Emissions by [insert date/ 2050 or sooner] to achieve a balance between the Borrower’s sources and sinks of GHGs in a calendar year and for each subsequent year thereafter and to achieve Paris Agreement Goals.

Offsetting Strategy means a plan specifying:

(a) the carbon credits that [may/ will] be purchased by the Borrower from a project that has been verified in accordance with [insert name of voluntary standard] or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism] to offset its Residual Emissions;

(b) [how/ that] the emissions of GHGs avoided, reduced or removed by the project are additional;

(c) how the Borrower will transition from using credits resulting from offsetting projects that avoid or reduce third party emissions of GHGs to those from projects that remove emissions of GHG and involve long-term storage methods that have a low risk of reversal [over millennia];

(d) how the Borrower will [use best endeavours to] reduce its use of credits by reducing its Residual Emissions [to zero/ by [x] %] by 2050; and

(e) the impact of the relevant offsetting projects on a just transition and wider social and ecological goals.

Paris Agreement Goals means the three goals set out in Articles 2.1 and 4.1 of the UNFCCC’s Paris Agreement[, in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels.

Residual Emissions means the GHG Emissions that are emitted by the Borrower after all reasonable efforts have been made by the Borrower to reduce its GHG Emissions.

Second Party Opinion means the opinion issued by the External Reviewer or such other party that is acceptable to the Arrangers and Borrower, addressed to the Arrangers and the Agent, in form and substance satisfactory to the Agent (acting on the instructions of all of the Lenders), confirming the conformity of the Green Loan Framework to the Green Loan Principles.

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