ESG margin ratchet

Abstract

in the know leveraged finance newsletter by ben wilkinson, nick o'grady, connor lovie, ben bierwirth and natalie butchart of baker mckenzie's london office november 2021 esg margin ratchet in this edition of in the know, we look at environmental, social and governance (esg) standards in sustainability linked lending (in both loans and bonds). we address the esg margin ratchet, how it interacts with esg targets and testing strategies, and potential reinvestment obligations arising out of those interest savings, in each case, within the european leveraged finance market. introduction sustainability linked lending (sll) is any type of loan or bond instrument that incentivises the borrower to achieve ambitious, predetermined sustainability performance targets (spts).1 in contrast to green loans or bonds where the focus is on the use of proceeds (applied exclusively toward green projects), sll focuses on the borrower and its observance and development of esg standards over time.2 for borrowers, sll provides more than just liquidity; improved credit worthiness is available to those who put esg standards at the forefront of their business. for investors, sll may be at the core of their investment strategy (or even a requirement for some) and may increase returns on investment — they help strengthen relationships with stakeholders throughout the communities in which they and their borrowers operate. for both sides, sll offers positive reputational impact and increased brand …

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