COP26’s spotlight on sustainable finance highlights new opportunities for lenders, investors and borrowers alike – stakeholders can harness momentum in this space to promote sustainable finance products and meaningfully engage with ESG representations and covenants.

The 2021 United Nations Climate Change Conference (COP26), hosted in Glasgow from October 31 - November 12, 2021, marks the 26th conference of the United Nations (UN) Framework on Climate Change and the third meeting of the member states party to the UN Framework Convention on Climate Change, 192 of whom are also parties to the Paris Agreement. 

One of COP26’s four goals is mobilizing public and private sector finance to support securing global net-zero emissions and protecting communities and habitats.1 Sustainable finance is undoubtedly an area of focus at the COP26 summit table this year, with a focus on mobilizing public and private finance flows at scale to build market resilience through climate change mitigation and adaptation measures.2 

Many financial institutions, including six of Canada’s largest banks, have already committed to net-zero banking by 2050 by joining the industry-led Net-Zero Banking Alliance (NZBA), a global sustainability-focused banking initiative. By joining the NZBA, banks commit to setting science-based targets and aligning their lending and investment portfolios with pathways to net-zero emissions.3

The finance marketplace is rapidly changing

The Paris Agreement and the 2015 UN Sustainable Development Goals are important drivers behind sustainable financing solutions.4 

Companies, investors and lenders have become increasingly concerned about the impact of their business decisions on environmental, social and governance (ESG) matters. This spotlight has led to an emphasis on the importance of investment decisions that mitigate exposure to climate risk, comply with current and future regulations and limit any potential reputational damage. 

As part of their sustainability goals, industry leaders are increasingly devising green and sustainable strategies, incorporating them into their business strategies and aligning their funding mechanisms to their sustainable development commitments.5 

The sustainability-linked loan (SLL) is one prime example of a financial product Canadian lenders can offer to incentivise and motivate clients achieve their sustainability objectives.

Sustainability-linked loans

An SLL is any type of loan instrument and/or contingent facility (such as a bonding line, disclosure line, or letter of credit) that incentivizes the borrower’s achievement of ambitious, predetermined sustainability performance objectives.6 The borrower’s sustainability performance is measured using sustainability performance targets (SPTs) that include key performance indicators, external ratings and/or equivalent metrics that measure improvements in the borrower’s sustainability profile.7 

These SPTs are linked to ESG performance and can measure metrics such as greenhouse gas emissions, waste disposal, water consumption, sustainable sourcing and human rights.

Incentivization in an SLL can take on a variety of forms – borrowers who achieve their SPTs may be rewarded with a discounted interest rate margin. Conversely, some SLLs contemplate a margin increase where a borrower does not achieve its SPTs.

For lenders, the benefits of SLLs include stronger relationships with stakeholders, positive impacts on reputation and credibility and a demonstration of their commitment to achieving sustainability goals.8 SLLs can feasibly result in a win-win-win situation: a win for the sustainable borrower, the lender, the investor and all those who benefit from the fulfilment of those SPTs.

Unlike green loans, where the loan proceeds are available exclusively for green projects, SLLs do not restrict the borrower’s use of the proceeds – borrowers can generally use SLL funds for any purpose. While green loans continue to enjoy popularity in the lending market, SLL-issuance is on path to be the biggest portion of the overall sustainable capital markets in 2021.9

SLL’s popularity took off in North America in 2019 and the market has continued to see significant growth. Despite a slowdown in 2020 due to the COVID-19 pandemic, SLL issuance in 2021 is expected to outperform all previous years, having already eclipsed the $200 billion mark by August.10 

In May 2021, the Loan Syndications and Trading Association, Loan Market Association and Asia Pacific Loan Market Association published a revision of the SLL Principles and guidance note in response to rapid growth in SLL volume. These principles are intended for broad market use, providing a high-level framework so that market participants can understand the characteristics of SLLs and within which the flexibility of the SLL product can be maintained.11 The five core principle components include selection of key performance indicators, calibration of SPTs, loan characteristics, reporting and verification.12 

SLLs present opportunities for both lenders and borrowers

SLLs present lenders, borrowers and investors alike with tremendous opportunities. Lenders should harness the momentum in the sustainable finance market to promote SLLs and other sustainable instruments for clients. Borrowers should meaningfully engage with their ESG representations and covenants and capitalize on the opportunity to obtain funding at decreased and competitive costs.

Our team of lawyers is well positioned to advise on all aspects of sustainable finance, including sustainable finance products, sustainable equity and debt instruments, financial services regulation, voluntary codes of practice and policy and other ESG matters.

The authors wish to thank Steven Legault, articling student, for his help in preparing this legal update. 



COP26 Goals - UN Climate Change Conference (COP26) at the SEC – Glasgow 2021 (

2   A seat at the table for sustainable finance at COP26 | Global law firm | Norton Rose Fulbright; Presidency Programme - UN Climate Change Conference (COP26) at the SEC – Glasgow 2021 (

3   The Commitment – United Nations Environment – Finance Initiative (

4   Guidance on Sustainability Linked Loan Principles (SLLP) – LSTA (

5   Ibid.




Supra note 4.


De-mystifying Sustainability-Linked Loans and the Advantages of Entering into One (




Supra note 6.


Sustainability Linked Loan Principles (SLLP) – LSTA (


Partner, Canadian Co-Head of Environmental, Social and Governance (ESG)
Senior Partner, Canadian Co-Head of Environmental, Social and Governance (ESG)

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