Green finance has evolved in recent years, giving rise to a powerful and increasingly popular financial instrument: the sustainability linked loan (SLL). One specific type of SSL is the Sustainable Development Goals (SDG)‑linked loan, which ties borrowing terms specifically to the achievement of agreed SDG-related targets and KPIs. Unlike some green or social loans which restrict the use of funds to specific projects, sustainability and SDG‑linked loans offer greater flexibility and can be used for general business purposes. There are, however, important core principles around sustainability metrics and reporting that borrowers must strictly adhere to, making independent third-party assurance a critical requirement.
What are the SDGs?
The United Nations Sustainable Development Goals (SDGs) are a set of 17 global goals adopted by all member states in 2015 to advance “peace and prosperity for people and the planet, now and into the future”. Part of the UN 2030 Agenda for Sustainable Development, they cover a wide range of economic, environmental and social objectives, including climate action, clean energy, decent work, reduced inequalities and sustainable cities. The SDGs provide a common framework used by governments, investors, lenders and businesses to define, measure and communicate sustainability impact.
One of the biggest hurdles to achieving the SDGs is insufficient funding, with a financing gap currently estimated at USD 4 trillion per year. The participation of commercial lenders, development banks, investment groups and responsible businesses of all sizes through SDG commitments is needed to help address this shortfall.
Governance and Guidance
SDG-linked lending is primarily governed by voluntary, industry-led frameworks rather than a single regulatory body. The Loan Market Association (LMA), the Loan Syndications and Trading Association (LSTA), and the Asia Pacific Loan Market Association (APLMA) jointly publish the Sustainability Linked Loan Principles (SLLP), a framework that guides lenders and borrowers on how an SDG-linked loan should be structured and managed.
The latest SLLP guidance, updated in March 2025, sets out five core components that aim to ensure the integrity and transparency of the sustainability-linked lending process.
1. Selection of key performance indicators: KPIs should be “relevant, core and material” to a borrower’s overall business and sustainability strategies, externally verifiable and able to be benchmarked against external standards or historical performance.
2. Calibration of sustainability performance targets: Borrowers should set ambitious goals that are predefined for the duration of the loan and consistent with broader sustainability objectives. For many organisations, targets based on the Sustainable Development Goals are an ideal fit for this requirement.
3. Loan characteristics: A distinguishing feature of SSLs is how the financial terms of the loan incorporate a margin adjustment mechanism that increases or decreases the cost of credit based on performance against sustainability targets.
4. Reporting: Borrowers are expected to provide formal reporting, at least annually, disclosing sufficient data for lenders to assess performance against targets.
5. Verification: A key requirement of SSLs is independent third-party review of KPI and target achievement to assure lenders that loan conditions have been met.
Organisations able to adopt these principles gain the ability to access a broader pool of sustainable capital and the opportunity to lower borrowing costs by setting and achieving verified sustainability targets.
How Menzies can help
SDG‑linked loans represent a significant opportunity for organisations to align financing with sustainability strategy. However, the success of these instruments depends on credible measurement, reporting and assurance. With increasing scrutiny from lenders and stakeholders, independent audit and assurance is a key enabler of trust.
Menzies is well‑placed to support organisations navigating this evolving area of sustainable finance, including:
• Reviewing and advising on sustainability KPI frameworks to ensure they are robust, measurable and auditable.
• Providing independent assurance and verification over sustainability KPIs and targets.
• Integrating sustainability metrics into wider audit and assurance planning.
• Advising on sustainability reporting, disclosures and internal control frameworks.
• Supporting clients in meeting lender, investor and regulatory expectations.
