As financial products evolve, so does the structure of sustainability-linked lending. We now see a clear bifurcation in the market. On one side are SLLP-aligned Sustainability-Linked Loans (“SLLs”), which follow the Loan Market Association’s principles and offer a high degree of credibility and uniformity. On the other side are sustainable ratchet frameworks, which provide more flexibility but operate under lighter standards and less formal oversight.
Both approaches have a role to play. Understanding this divergence is essential for borrowers, lenders, and investors shaping the next phase of sustainable finance.
SLLP-aligned SLLs: the gold standard
SLLP-aligned sustainability-linked loans are the gold standard in sustainability-linked lending. In 2024, global issuance reached approximately €273 billion, driven by corporates, infrastructure funds, and firms with mature ESG strategies (ING, 2025).1 More recently, CTP announced a €500 million syndicated SLLP-aligned credit facility, coordinated by ING and SMBC (CTP, 2024).
Their popularity arises because SLLs are trustworthy, with robust KPIs, ambitious sustainability performance targets (“SPTs”), and mandatory third-party verification. SLLs are among the most important levers that lenders have to accelerate sustainability maturity with SME borrowers, as they are often the first entry point into the topic for these companies.
To further improve their use of it, the Sustainability-Linked Loan Principles (“SLLP”) introduced key changes: clearer terminology (e.g., “shall” vs. “should”), removal of grandfathering provisions, and stricter standards for KPI credibility (Slaughter and May, 2025).
CTP’s deal can be praised for its rigorous KPI framework and strong verification process, reinforcing why SLLs continue to command trust and remain the gold standard in sustainable finance. Looking ahead, as regulatory expectations and investor scrutiny intensify, the next wave of SLLs will likely push the boundaries of transparency, accountability, and impact, setting new precedents for what credible sustainable lending should look like.
Sustainable ratchets: flexibility with caution
Sustainable ratchets are becoming increasingly popular among SMEs, emerging market borrowers, and companies beginning to consider ESG. Their main advantage is that they allow interest rates to adjust based on sustainability performance, without requiring full compliance with the SLLPs. This makes them more accessible and adaptable, especially for smaller firms or those exploring ESG strategies for the first time.
At the same time, this flexibility introduces certain risks. The lack of mandatory external verification and the use of less ambitious KPIs can lead to concerns about greenwashing and undermine investor confidence. While sustainable ratchets can serve as a useful entry point into ESG-linked financing, their effectiveness depends on the credibility of the targets, the transparency of reporting, and the presence of appropriate oversight.
How we support both paths
We see value in both approaches. Ratchets offer accessibility, while SLLs provide credibility. We help clients navigate the nuances of each. For ratchets, we support SMEs and companies in transition by setting credible and defensible targets that reduce the risk of greenwashing. For SLLP-aligned SLLs, we guide corporates through the selection of KPIs, the calibration of SPTs, and the verification process to ensure alignment with evolving standards. We also review and verify existing loans to bring them in line with the latest SLLP requirements.
Beyond individual transactions, we actively contribute to strengthening the broader sustainable finance ecosystem. We support the development of clearer industry guidelines that reflect the realities of smaller and transitioning firms. For example, we encourage the inclusion of SME-specific provisions or a dedicated chapter within the SLLPs. In a market that balances flexibility with rigour, we ensure that clients do not just participate in sustainable finance. We ensure they lead it and reap the benefits.
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References
- Rahill, T. and Zhang, C. (2025) Sustainable Finance: Paint it Green. ING Think, 26 Feb. Available at:https://think.ing.com/articles/sustainable-finance-paint-it-green/
- PRI (2025) A framework for driving financial value through sustainability in private markets, Principles for Responsible Investment, July. Available at: https://www.unpri.org/private-markets/sustainability-value-creation/13332.article
- CTP (2025) CTP announces the signing of a €500 million unsecured syndicated sustainability-linked loan facility. Available at: https://ctp.eu/news/ctp-announces-the-signing-of-a-e500-million-unsecured-syndicated-sustainability-linked-loan-facility/
- Slaughter and May (2025) 2025 updates to the Sustainability-Linked Loan Principles. Available at: https://www.slaughterandmay.com/insights/new-insights/2025-updates-to-the-sustainability-linked-loan-principles/
