The LMA published its updated Draft Provisions for Sustainability-Linked Loans on 18 August 2026, representing an evolution of its previous drafting published in May 2023. The revised provisions respond to developments in sustainability-linked lending practice, increasing market scrutiny of sustainability credentials, and the continuing focus on preserving the integrity of the sustainability-linked loan (SLL) market.
The LMA published its updated Draft Provisions for Sustainability-Linked Loans on 18 August 2026, building on its previous drafting published in May 2023. The revised provisions respond to developments in sustainability-linked lending practice, increasing market scrutiny of sustainability credentials, and the continuing focus on preserving the integrity of the sustainability-linked loan (SLL) market.
The 2023 drafting was designed primarily as a rider to the LMA's leveraged acquisition finance documentation. The 2026 version broadens the provisions for use across the LMA's wider suite of primary loan documents, formalises much of what we have seen in the market since 2023 and, in doing so, demonstrates the establishment of sustainability-linked financing across multiple lending products and borrower sectors.
In this article we consider some of the key updates to the LMA's drafting.
Expansion of sustainability amendment events
In the 2023 drafting, a Sustainability Amendment Event primarily occurred when an asset disposal, acquisition or merger by the borrower group could reasonably be expected to materially affect any key performance indicator (KPI) or sustainability performance target (SPT). In accordance with market practice, the 2026 drafting expands the scope of a Sustainability Amendment Event so it is also triggered by changes to any KPI, SPT, calculation methodology or baseline which could reasonably be expected to materially affect a particular KPI or SPT. If a Sustainability Amendment Event occurs and amendments are not made to remedy it after a certain time, the loan will be declassified as sustainability-linked – Borrowers should therefore obtain regular and accurate updates from any auditors or external reviewers responsible for reporting on KPIs and SPTs to avoid triggering a Sustainability Amendment Event under the new drafting.
New SPT amendments drafting
A new optional "SPT amendments" mechanism allows parties to defer the agreement of certain SPTs to after the completion date. This provides flexibility to borrowers who might be eager to complete a transaction to access funding but have still not completed the necessary due diligence (e.g. on EPCs of their properties or carbon reporting) to understand whether certain SPTs are attainable. Equally, the SPT amendments mechanism also reflects the increasing willingness of lenders to accommodate evolving sustainability strategies post-completion. Such drafting formalises positions we have negotiated for our clients in practice since 2023 – for instance in the social housing market where mechanisms to agree future KPIs have become well-established, particularly in amendments and restatements of existing loans.
Under the new drafting, the borrower must provide the agent with proposed SPTs by a certain longstop date, and the borrower and the agent must negotiate in good faith for a minimum period to agree the SPTs. Such time periods must be carefully agreed before the facility agreement is entered into given that, under the new drafting, failing to agree new SPTs is an optional Declassification Event.
Simplification of sustainability margin adjustments and sustainability breaches
In the 2026 update the margin adjustment table in the Sustainability Margin Adjustment clause (new clause 9.3) has been simplified, inserting placeholders for basis points adjustments in accordance with the number of SPTs met.
Conversely, the margin adjustment for a Sustainability Breach has been made more prescriptive, such that the margin shall be adjusted accordingly during the period in which a Sustainability Breach has occurred, whilst a Sustainability Breach that continues beyond a certain period will be a Declassification Event. This clarity on the consequences of a Sustainability Breach is arguably beneficial for lenders and borrowers, particularly as it aligns the parties to remedy the issues within set timeframes.
Additional declassification events
Whilst the 2023 provisions contemplated declassification of facilities for the failure to agree amendments after a Sustainability Amendment Event, the 2026 version expands the range of Declassification Events.
New optional triggers for declassification are:
- failure of the borrower to agree deferred SPTs within certain timeframes;
- repeated failures to deliver Sustainability Compliance Certificates; and
- continuing Sustainability Breaches for certain timeframes;
These optional triggers reflect market practice that has developed since May 2023. In any case though, such drafting is likely to be welcomed by lenders who can more formally protect against the sustainability credentials of a facility becoming compromised.
Introduction of drafting for "Sleeping" SLLs
The 2026 update contains dedicated drafting for "sleeping" SLLs. In practice, transactions have already developed in the market in which the parties wish to designate a facility as potentially sustainability-linked, but KPIs and SPTs cannot be finalised at signing. The new drafting and concept of "sleeping" SLLs serve to formalise that practice.
It offers two alternative approaches:
- a short-form amendment mechanism allowing SLL provisions as well as KPIs and SPTs to be agreed post-completion; and
- a full-form approach under which SLLs provisions are included in the facility agreement at completion but only become effective once the KPIs and SPTs are agreed post-completion.
These approaches take a further step to the SPT amendments drafting discussed above, providing a more structured framework for borrowers on transactions where certain sustainability terms are not yet agreed, whilst preserving control for the lender through approval rights and activation requirements.
Conclusion
The 2026 LMA SLLs update reflects the developments we have seen in the market since the previous drafting was release in 2023. Such developments demonstrate a clear market trend towards greater scrutiny of sustainability-linked financings and enhanced protections against greenwashing concerns, with clearer declassification rights and consequences enabling more robust lender governance. Equally, the update allows parties, but borrowers particularly, greater flexibility around evolving sustainability metrics, and structured solutions with the formal introduction of sleeping SLLs.
