Model clause

Sustainability-Linked Loans

Casper's Clause

Model clauses, as a set of optional riders divided into product categories and ESG goals, to incorporate SLPs into traditional financing documents, standard T&Cs and finance products.

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Why use this?

These draft clauses are for use in any facility agreement, particularly based on a standard LMA Facility Agreement, which will include a sustainability linked loan.

They are designed to incorporate the Sustainability Linked Principles produced by the LMA in May 2020 and provide model drafting for one or more sustainability linked facilities.

How it promotes a net zero future

The drafting will mobilise more climate finance.

The availability of industry approved terms allowing for finance linked to sustainable goals will make it easier for lenders to focus their lending practices to achieve ESG goals. This will encourage businesses and borrowers across the economy as a whole to transform their business into a more sustainable structure.

For example, traditional development loans to be linked to environmental targets such as use of materials and other targets focusing on how buildings can be built in an environmentally friendly way.

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The clauses on this website (and published in our Climate Contract Playbook) have been prepared in good faith on a pro bono basis and are free to download and use. The clauses have been drafted and edited by a variety of lawyers and, as such, the approaches to drafting may not conform to any particular drafting norms. We acknowledge this as a consequence of the collaborative drafting process.

The clauses on this website (and published in our Climate Contract Playbook) are provided on an ‘as is’ basis and without any representation or warranty as to accuracy or that the clauses will achieve the relevant climate goal or any other outcome.

This website (and the Climate Contract Playbook) does not comprise, constitute or provide personal, specific or individual recommendations or advice of any kind, and does not contain legal or financial advice. The clauses are precedents for legal professionals to use, amend and negotiate using their professional skill and judgement and at their own risk.

While care has been taken in the drafting of these clauses, neither The Chancery Lane Project nor any of its contributors owe a duty of care to any party in relation to their preparation and do not accept any liability for any errors or omissions, nor for any loss incurred by any person relying on or using these clauses or any other person. Users should use their own professional judgement in the application of these clauses to any particular circumstance or jurisdiction or seek independent legal advice.

At present, all the clauses are based on the laws of England and Wales. We encourage the conversion of these precedent clauses for use in other jurisdictions.

The clause

Table of contents for Casper’s clause

Definitions 

Sustainability Linked Facilities 

Representations 

Information Undertakings 

Events of Default 

Subsequent 

Schedule 1 – Conditions Precedent 

Sustainability linked documentation 

Schedule 2 – Sustainability Performance Targets 

Schedule 3 – Form of Sustainability Compliance Certificate 

Schedule 4 – Form of Sustainability Performance Evaluation

Definitions:

Achieved SPT means a Sustainability Performance Target in respect of which the Group is categorised as being in current compliance with by the Sustainability Coordinator in the most recent Sustainability Performance Evaluation.

Business Site means [x].

Sustainability Performance Evaluation means a Sustainability Performance Evaluation provided by the Sustainability Coordinator pursuant to Clause 1.4(a) (Sustainability Performance Evaluations).

Margin means

(a) [x] per cent. per annum; or

(b) in relation to a Sustainability Linked Facility, as may be amended from time to time following a Sustainability Performance Evaluation by way of a Sustainability Linked Margin Decrease or a Sustainability Linked Margin Increase.

Sustainability Compliance Certificate means a certificate substantially in the form set out in Schedule [x] (Schedule 3 – Form of Sustainability Compliance Certificate).

Sustainability Coordinator [or Sustainability Structuring Agent] means [x].

Sustainability Expert means an auditor, environmental consultant, independent ratings agency or industry professional qualified in relation to one or more Sustainability Performance Targets, in each case as agreed between the Sustainability Coordinator, Sustainability Linked Borrowers and Majority Lenders from time to time (or in the absence of such agreement, as selected by the Sustainability Coordinator).

Sustainability Linked Borrower means each Borrower under a Sustainability Linked Facility.

Sustainability Linked Facility means each Facility designated as a sustainability linked facility made available under this Agreement as described in Clause [1.1] (Sustainability Linked Facilities).

Sustainability Linked Margin Decrease means a decrease in the Margin to [x] per cent. per annum. 

Sustainability Linked Margin Increase means an increase in the Margin to [x] per cent. per annum.

Sustainability Objectives means the sustainability objectives as detailed in the Sustainability Strategy.

Sustainability Performance Evaluation means an evaluation provided by the Sustainability Coordinator substantially in the form set out in Schedule [x] (Schedule 4 – Form of Sustainability Performance Evaluation).

Sustainability Performance Target or SPT means the key performance indicators set out in Schedule [x] (Schedule 2 – Sustainability Performance Targets).

Sustainability Performance Test Date means [31 March, 30 June, 30 September and 31 December] in each calendar year.

Sustainability Strategy means a report provided by each Sustainability Linked Borrower detailing:

(a) its Sustainability Objectives;

(b) a business plan detailing how it will achieve its Sustainability Objectives and comply with the Sustainability Performance Targets for the duration of each Sustainability Linked Facility; and

(c) the fees, costs and expenses, stamp, registration and other Taxes incurred or to be incurred by it or any other member of the Group in connection with achieving the Sustainability Performance Targets.

  1. Sustainability Linked Facilities

1.1 [Facility/Tranche] [x] and [Facility/Tranche] [x] are each designated as a Sustainability Linked Facility.

1.2 Sustainability Performance Targets 

Each Sustainability Linked Borrower undertakes to use its [best/all reasonable] endeavours to achieve its Sustainability Performance Targets.

1.3 Sustainability Performance Evaluations

(a) Within [15] Business Days of receipt of a Sustainability Compliance Certificate pursuant to Clause 3.1(a) (Sustainability Compliance Certificate), the Sustainability Coordinator shall provide the Sustainability Linked Borrower with a Sustainability Performance Evaluation detailing, based on the Sustainability Compliance Certificate provided to it and any further discussions it has had with Sustainability Experts in accordance with Clause 4.1(d), the amount of SPTs which shall be designated as Achieved SPTs for the purposes of calculating a Sustainability Linked Margin Decrease or Sustainability Linked Margin Increase pursuant to Clause 1.3(b) below.

(b) Each Sustainability Performance Evaluation shall determine whether a Sustainability Linked Margin Decrease or a Sustainability Linked Margin Increase shall apply during the period from the date of its delivery to the Sustainability Linked Borrower until the delivery of the next Sustainability Performance Evaluation to the Sustainability Linked Borrower, using the following calculations:

(i) If the number of Achieved SPTs is over [75%] of the total number of Sustainability Performance Targets as at the most recent Sustainability Performance Test Date then the Sustainability Linked Margin Decrease shall apply; or

(ii) If the number of Achieved SPTs is under [50%] of the total number of Sustainability Performance Targets as at the most recent Sustainability Performance Test Date then the Sustainability Linked Margin Increase shall apply.

  1. Representations

2.1 [Insert sustainability linked reps and warranties – for example, correct form of reporting on SPTs etc.]

  1. Information Undertakings

3.1 Sustainability Compliance Certificate

(a) Within 30 days of each Sustainability Performance Test Date, each Sustainability Linked Borrower shall supply the Sustainability Coordinator with a Sustainability Compliance Certificate setting out (in form and substance satisfactory to the Sustainability Coordinator, acting reasonably) computations and information in compliance with this Clause 3.1.

(b) Each Sustainability Compliance Certificate shall:

(i) report on achievement of each Sustainability Performance Target as at the relevant Sustainability Performance Test Date, including identification of those it considers to be Achieved SPTs;

(ii) include any relevant report, certification, rating or any other information as contemplated by any Sustainability Performance Target;

(iii) detail any assumptions used by the Sustainability Linked Borrower in its preparation and include reasonable supportive evidence as to compliance with each Sustainability Performance Target, which has been independently verified by a Sustainability Expert (the costs of which shall be paid by the Sustainability Linked Borrower); and

(iv) be signed by two directors of the Sustainability Linked Borrower.

(c) Each Sustainability Compliance Certificate provided to the Sustainability Coordinator pursuant to this Clause 3 [(including any documentation produced in the verification of the relevant Sustainability Compliance Certificate pursuant to clause 3.1(b)(iv) above)] shall be made available for public access on its website by the Sustainability Linked Borrower [within [3] months of delivery to the Sustainability Coordinator][, and additionally shall be referenced in its annual [sustainability] report].

(d) [If requested to do so by the Majority Lenders, the Sustainability Coordinator shall discuss the Sustainability Compliance Certificate or any aspect of it with the relevant Sustainability Expert[s] and report on those discussions to the Lenders. The Sustainability Linked Borrower shall pay the reasonable costs and expenses of the Sustainability Coordinator and the Sustainability Experts so incurred.]

3.2 Sustainability Strategy

Each Obligor shall:

(a) at all times and in all material respects procure that the Group’s business is carried out in accordance with the Sustainability Strategy; and

(b) not, without the prior written consent of the Sustainability Coordinator (acting in accordance with the instructions of the Majority Lenders), amend or vary the Sustainability Strategy.

3.3 [Energy Performance Certificate of each [Business Site]]

[Each Obligor shall, within [15] Business Days of a request by the Sustainability Coordinator, supply or shall procure to supply to the Sustainability Coordinator of a copy of the current energy performance certificate(s) in respect of each Business Site or evidence that an energy performance certificate is not required under any applicable law or regulation.]

3.4 Environmental, social and corporate governance

(a) Together with delivery of each Sustainability Compliance Certificate the Company shall notify the Sustainability Coordinator (in reasonable detail) of any incident relating to environmental, social and corporate governance of the Group that has occurred that is in any material respect a breach or non-compliance with its Sustainability Objectives [or any ESG report delivered to the Sustainability Coordinator].

(b) Upon delivery of each set of its Annual Financial Statements each Obligor shall deliver to the Agent information as may be reasonably requested by the Sustainability Coordinator (acting on the instructions of the Majority Lender) regarding the environmental, social and corporate governance of the Group which is not already contained in such Annual Financial Statements.

  1. Events of Default

4.1 [A Sustainability Linked Borrower has Achieved SPTs which are less than [25%] of the total number of Sustainability Performance Targets as at any Sustainability Performance Test Date, as indicated by a Sustainability Performance Evaluation.]

4.2 A Sustainability Linked Borrower fails to provide a Sustainability Compliance Certificate pursuant to Clause 4.1(a) for a Sustainability Performance Evaluation.

  1. Conditions Subsequent

5.1 [Publication of each Sustainability Strategy and the Sustainability Performance Targets within [x] Business Days of the date of this Agreement on the relevant Sustainability Linked Borrower’s website.]

Schedule 1 – Conditions Precedent

  1. Sustainability linked documentation

(a) The Sustainability Strategy initialled by the Sustainability Linked Borrower and the Sustainability Coordinator.

(b) A certificate of the Sustainability Linked Borrower (signed by a director) confirming the Sustainability Linked Borrower will undertake its business activities and apply proceeds of the Sustainability Linked Facilities in accordance with the Sustainability Strategy.

(c) A report by the relevant Sustainability Experts addressed to the Lenders confirming that the Sustainability Strategy is appropriate, uses suitable and reasonable methodologies and that its application can reasonably be expected to enable the Sustainability Linked Borrower to achieve its Sustainability Performance Targets

(d) [Insert specific SPTs CPs/Industry standard reports/ratings related to SPTs etc.]

Schedule 2 – Sustainability Performance Targets

SPT  Category SPT Targets
SPT1 Energy efficiency
  • [Improvements in the energy efficiency rating of buildings and/or machinery owned or leased by the borrower.] [e.g. before end of March 2021]
SPT2 Greenhouse gas emissions
  • [Reductions in greenhouse gas emissions in relation to products manufactured or sold by the borrower or to the production or manufacturing cycle.]
SPT3 Renewable energy
  • [Increases in the amount of renewable energy generated or used by the borrower.]
SPT4 Water consumption
  • [Water savings made by the borrower.]
SPT5 Affordable housing
  • [Increases in the number of affordable housing units developed by the borrower.]
SPT6 Sustainable sourcing 
  • [Increases in the use of verified sustainable raw materials/supplies.]
SPT7 Circular economy
  • [Increases in recycling rates or use of recycled raw materials/supplies.]
SPT8 Sustainable farming and food
  • Improvements in sourcing/producing sustainable products and/or quality products (using appropriate labels or certifications).]
SPT9 Biodiversity 
  • [Improvements in conservation and protection of biodiversity.]
SPT10 Global ESG assessment
  • [Improvements in the borrower’s ESG rating and/or achievement of a recognised ESG certification.]
SPT11 Employee Training Programme
  • [Training staff on sustainability/climate issues and how to improve on the borrower’s footprint]
SPT12 [x]
  • [x]
SPT13 [x]
  • [x]

Schedule 3 – Form of Sustainability Compliance Certificate

To: [x] as Sustainability Coordinator 

From: [Sustainability Linked Borrower] 

Dated:

Dear Sir or Madam,

[Sustainability Linked Borrower] – Facility Agreement
dated [x] (the “Agreement”)

  1. We refer to the Agreement. This is a Sustainability Compliance Certificate. Terms defined in the Agreement have the same meaning when used in this Sustainability Compliance Certificate unless given a different meaning in this Sustainability Compliance Certificate.
  2. Sustainability Linked Borrower’s report on its Sustainability Performance Targets as at most recent Sustainability Performance Testing Date
SPT SPT Category Developments during period since the immediately preceding Sustainability Performance Testing Date Self-evaluation of Sustainability Linked Borrower
SPT1 Energy efficiency [x] [Achieved SPT] [Unachieved SPT]
SPT2 Greenhouse gas [x] [Achieved SPT] [Unachieved SPT]
SPT3 emissions  [x] [Achieved SPT] [Unachieved SPT]
SPT4 renewable energy [x] [Achieved SPT] [Unachieved SPT]
SPT5  Water consumption  [x] [Achieved SPT] [Unachieved SPT]
SPT6 Affordable housing [x] [Achieved SPT] [Unachieved SPT]
SPT7 Sustainable sourcing [x] [Achieved SPT] [Unachieved SPT]
SPT8 Circular economy  [x] [Achieved SPT] [Unachieved SPT]
SPT9 Sustainable farming and food [x] [Achieved SPT] [Unachieved SPT]
SPT10 Biodiversity Global ESG assessment [x] [Achieved SPT] [Unachieved SPT]

 

Signed: ………… …………
Director Director
of of 
[Sustainability Linked Borrower] [Sustainability Linked Borrower]

[Insert applicable certification language]

[include Sustainability Expert’s verification reporting] 

…………

for and on behalf of 

[name of Sustainability Expert of the Sustainability Linked Borrower]

Schedule 4 – Form of Sustainability Performance Evaluation

To: [x] as Sustainability Linked Borrower From: [x] as Sustainability Coordinator Dated:

Dear Sir or Madam,

[Sustainability Linked Borrower] – Facility Agreement 

dated [x] (the “Agreement”)

  1. We refer to the Agreement. This is a Sustainability Performance Evaluation. Terms defined in the Agreement have the same meaning when used in this Sustainability Performance Evaluation unless given a different meaning in this Sustainability Performance Evaluation.
  2. We have evaluated your Sustainability Compliance Certificate dated [Date]. [It is our assessment is that [SPT][, SPT][ and SPT] are Achieved SPTs.][It is our assessment that no SPTs are Achieved SPTs/]
  3. [Sustainability Linked Borrower] has achieved [x]% of its Sustainability Performance Targets.
  4. As [Sustainability Linked Borrower] has achieved [[75%] or more][[50%] or less][between [50%] and [75%]] of its Sustainability Performance Targets, [Sustainability Linked Borrower] [will have a Sustainability Linked Margin [Increase][Decrease]][no Sustainability Linked Margin Increase or Sustainability Linked Margin Decreased] shall be applied.
  5. Margin from the date of this certificate until delivery of the next succeeding certificate (“Temporary Margin Interest Period”) shall be [x] per cent. per annum.
Signed: ………..
Authorised Signatory
of
[Sustainability Coordinator]

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