Sustainable Linked Loans and Sustainable Project Finance Workshop

The workshop opened with a clear-eyed view of global sustainable finance trends. According to BloombergNEF data cited in the session, sustainable debt issuance reached a record $1.6 trillion in 2021, with green bonds alone accounting for $625 billion. By Q1 2024, the combined sustainable and sustainability-linked loan market hit EUR 212 billion globally — the highest first-quarter figure since the market's inception in 2017. Within ASEAN, despite a 32% contraction in 2022, volumes remained robust at USD 36 billion — nearly double the level recorded in 2020.

A key conceptual distinction reinforced throughout the workshop was that SLLs are performance-based rather than activity-based. Unlike green bonds or green loans — where proceeds must be earmarked for specific environmental projects — SLLs can be used for general corporate purposes. What makes them "sustainable" is the linkage of loan pricing (typically the interest margin) to the borrower's achievement of predetermined Sustainability Performance Targets (SPTs), measured against Key Performance Indicators (KPIs). This makes SLLs particularly valuable as transition finance instruments, capable of incentivising companies across all sectors — not just renewable energy — to embed sustainability into their core strategy.

Participants worked through the core components of the Sustainability-Linked Loan Principles (SLLP), as developed by the Loan Market Association (LMA). KPIs must be material to the borrower's business, measurable on a consistent basis, and benchmarkable against external references. SPTs must be calibrated with genuine ambition — whether against the borrower's own sustainability strategy, sector best practice, or international regulatory frameworks such as the Paris Agreement. The workshop also explored real-world examples, including Holcim's Sustainability-Linked Financing Framework, which uses net CO₂ intensity and freshwater withdrawal as KPIs, with verified targets extending to 2030. Participants were cautioned that lenders bear a responsibility to challenge KPIs and SPTs to ensure they are meaningful — not merely cosmetic.

Session 3 shifted focus to the mechanics of Sustainable Project Finance (SPF) from an E&S perspective. The session highlighted that lenders advancing credit to renewable energy projects must ensure construction, operational, supply, and offtake risks are adequately allocated and managed. Critically, E&S risks are present throughout the project lifecycle. International standards — including the IFC Performance Standards (PS1–PS8) and the Equator Principles — provide the framework through which lenders assess and monitor these risks. Case studies drawn from ERM Indonesia's own project experience illustrated common gaps: biodiversity baseline data deficiencies in a Maluku solar PV project, social acceptance challenges at a Central Java geothermal site, and proximity to protected mangrove areas in a cross-border solar-cable project linking Indonesia to Singapore were presented as potential real-life cases in managing E&S risks.

The workshop presented evidence that global sustainability trends are increasingly taking root locally. By 2022, 80% of Indonesian companies surveyed were using GRI Standards for sustainability reporting, and the Indonesian Stock Exchange had joined the TCFD Supporters network. KADIN's Net Zero Hub had enrolled 80 companies in greenhouse gas accounting programmes. These developments signal a growing ecosystem of corporate accountability that will both generate demand for SLLs and improve borrowers' capacity to meet the KPI and reporting requirements lenders will require.