【Vietnam Biz Vol. 26】Sustainability-Linked Loans (SLL)

A Sustainability-Linked Loan (SLL) is a type of financing where the loan terms (primarily interest rates) fluctuate depending on the achievement level of sustainability targets (Environmental, Social, and Governance: ESG) set by the enterprise, with its major defining feature being that the use of proceeds is not specified.

1. How SLL Works

The general process is as follows:

① Set KPIs (Key Performance Indicators)

・CO₂ emissions

・Renewable energy usage rate

・Occupational accident rate

・Ratio of female managers, etc.

② Set SPTs (Sustainability Performance Targets)

Example: “Reduce CO₂ emissions by 40% by 2030”

③ Annual Evaluation of Achievement

・If targets are met, interest rates are often reduced.

・If targets are not met, interest rates may be increased, or preferential terms may not be granted.

2. Difference from Green Loans

In other words, the difference lies in the fact that Green Loans evaluate the “use of funds,” while SLLs evaluate the “results of an enterprise’s ESG initiatives.”

Key Benefits

For enterprises, the benefits include:

・Easier promotion of ESG management (management prioritizing Environment, Social, and Governance)

・Potential to receive interest rate discounts upon target achievement

・Improved reputation among investors and financial institutions

・Easier demonstration of decarbonization and SDGs initiatives to external stakeholders

Relevance to Japanese Companies in Vietnam

In Vietnam as well, cases of Japanese megabanks and local financial institutions offering SLLs are increasing. For example, many companies operating in factories and industrial parks are setting targets such as:

・Expanding the installation of solar power equipment

・Reducing CO₂ emissions

・Improving energy efficiency

・Increasing waste recycling rates

・Improving occupational safety and working environment

As a result, SLL is becoming an increasingly popular means of financing capital expenditures and working capital for Japanese manufacturers expanding into Vietnam.

As a recent application example in Vietnam, in July this year, MUFG Bank signed a loan agreement with Morinaga Milk Industry’s Vietnamese subsidiary, linking financing terms directly to greenhouse gas emission reductions.