Loan Market Association Launches Social Loan Principles
On Tuesday 13th April 2021, the Social Loan Principles (SLP) have been published by the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndication and Trading Association (LTSA). The SLP have been established to promote the development and the integrity of the emerging Social Loan product and follow the publication of the Green Loan Principles (GLP) in 2018 and the Sustainability-Linked Loan Principles (SLLP) in 2019. The SLP build on and refer to the existing Social Bond Principles administered by the International Capital Markets Association (ICMA).
The Social Loan Principles – Definition and Core Components
A Social Loan is any type of loan instrument made exclusively to finance or re-finance social projects, which aim to address or mitigate a specific social issue and/or seeking to achieve positive social outcomes. The SLP comprise voluntary recommended guidelines, to be applied on a deal-by-deal basis depending on the underlying characteristics of the transaction.
Like the Social Bond Principles (SBP), the SLP are based around four core components:
- Use of Proceeds: The SLP explicitly recognize several broad categories of eligibility for Social Projects, including affordable basic infrastructure, access to essential services and affordable housing. The list of Social Projects is not exhaustive, it will be developed by the market overtime.
- Process for Project Evaluation and Selection: Borrowers should clearly communicate to lenders the social objective and the process by which the borrower determines how the project to be funded will fit within the eligible Social Project categories.
- Management of Proceeds: The proceeds of a Social Loan should be credited to a dedicated account or otherwise tracked by the borrower in an appropriate manner.
- Reporting: Borrowers should maintain up to date information on the use of the proceeds of their Social Loan. It should include a description of the amounts allocated and their expected impact.
As in the Green Loan Principles and Sustainability-Linked Loan Principles, the Social Loan Principles recommend issuers to seek an external review of their Social Loans to ensure compliance with the principles.
The difference between Social Loans, Green and Sustainability-Linked Loans
Where a Green Loan requires proceeds to be applied to a specific ‘green’ purpose, and Sustainability-Linked Loans incentivize borrowers to achieve pre-determined sustainability objectives with margin adjustment mechanism; Social Loans require proceeds to be applied to a specific ‘social’ purpose and/or seek to achieve positive social outcomes with defined target populations.
Natixis was actively involved in the working group comprised of Leading Banks and Law Firms active in the global loan market, which exchanged on the development and the structuration of the Social Loan Principles since the beginning of this Year. Following the fast-developing Social Bond market, particularly since last year along Sovereign Covid-19 Rescue plans, our conviction is that the Social Loan market will follow the same trends. These principles will further help to bring additional transparency and reporting features together with increased accountability in the social accommodation and project finance fields.
Natixis was a forerunner in this respect and acted as Sustainability Advisor on one of the first Social Loan issued for the “Fibre 44 Project” led by Axione, Vauban and Banque des Territoires (CDC). The project financing was qualified as a “Sustainable Loan” last December 22 which aims at building and operating a very high-speed broadband network in the Loire Atlantique Département with clear social benefits . Vigeo Eiris was appointed as the Second Party Opinion provider and confirmed the framework was aligned with the Green Loan Principles and the Social Bond Principles making it the “First Sustainable Loan” in France .