The sustainable financing market has grown substantially in recent years as businesses respond to concerns about climate change and, in many cases, pivot toward a more sustainable development path. Governments and regulators around the world are increasingly focused on issues relating to sustainability. The Paris Agreement signed in 2016 represents the first-ever worldwide accord on a pragmatic path to tackle climate change. In the wake of these developments, climate financing has emerged as one of the leading opportunities for the increased involvement of credit market participants.
The success and resilience of the green bond market over the last decade has encouraged borrowers and lenders to tap the sustainable lending market as a source of financing. This has coincided with the rising environmental consciousness among investors, shareholders and regulators, all of whom are placing increasing pressure on borrowers and lenders to pay attention to environmental and sustainability risk factors in their businesses and to demonstrate their serious commitment to improve the status quo. As of February 2019, more than 20 financial institutions have announced divestment and exclusion policies in relation to financing new coal plants and mines.
This article discusses the two most recent milestone developments in the sustainable loan market, provides insight into key features of sustainable loan documentation and highlights some of the key challenges that face this market. Annexed to this article is a factsheet which sets out some of the key sustainable finance developments across Asia, Europe and North America in the last two years.