[co-author: Ruth Butterworth]
As we famous beforehand, towards the backdrop of the European Inexperienced Deal and associated sustainable finance initiatives, environmental, social and governance (ESG) elements are more and more being integrated into mortgage and high-yield documentation. Because of this, the idea of a “sustainability coordinator” has emerged within the leveraged finance area, and the European Mortgage Market Affiliation (LMA) lately printed introductory steerage to this comparatively new and evolving function (out there right here).
The duties of a sustainability coordinator, in addition to how such duties are documented, is described as differing amongst transactions and lending establishments. It’s urged {that a} sustainability coordinator is perhaps appointed on a syndicated mortgage transaction the place the events intend to construction all or a part of the mortgage as a inexperienced, social and/or sustainability-linked (GSS) mortgage or the place it’s anticipated {that a} mortgage is perhaps transformed right into a GSS mortgage at a later date.
It’s anticipated that the coordinator shall be sourced from one of many key lenders on the transaction and in some instances additionally will fulfill the function of arranger or agent. As well as, it’s anticipated that the coordinator will typically be primarily concerned previous to signing of a facility, and their function would possibly embody:
- Helping in negotiating key efficiency indicators (KPIs) and associated sustainability efficiency targets (SPTs).
- Liaising with third events in relation to the selection of KPIs and SPTs and helping in aligning them with market requirements.
- Helping within the preparation of supplies to current the GSS mortgage construction to lenders and serving to to handle the associated dialogue between debtors and lenders.
In some cases—for instance, the place a mortgage is to be transformed right into a GSS mortgage post-signing or the place KPIs and SPTs should be recalibrated throughout the lifetime of the mortgage—a sustainability coordinator might need an analogous operate following origination.
The LMA introductory steerage identifies high-level rules to think about when events intend to nominate a sustainability coordinator. As an example, whereas the sustainability coordinator could have a considerable function in delineating data reporting obligations which can be finally memorialized in a facility and the way progress towards the negotiated KPIs and SPTs shall be measured (which in flip might influence pricing), events are sometimes excluded from counting on any affirmation from the coordinator in respect of compliance with benchmarks/inner insurance policies. Relatively, periodic reporting on sustainability metrics throughout the time period of the ability will as a substitute be collected by the agent and verified with an unbiased third get together. Moreover, coordinators will usually count on protections towards potential legal responsibility to the debtors and/or lenders. The scope of this language will rely on the actual function undertaken by the coordinator however could embody arranger- or agent-style protections (for instance, that the coordinator could depend on any representations which can be believed by it to be real, appropriate and appropriately approved). Events additionally could wish to contemplate whether or not obligors ought to be required to provide extra representations and warranties to the sustainability coordinator, similar to in relation to the accuracy of data offered, or whether or not there are related regulatory restrictions on advertising and marketing a mortgage as GSS.
Though normal practices in relation to the appointment of a sustainability coordinator are nonetheless forthcoming, the event and market recognition of a job devoted to enhancing the integrity and viability of inexperienced and sustainability-linked finance is a constructive one. We are going to proceed to observe future publications from the LMA on this regard.
