ICAEW SE · Chapter 4 · Question 9 of 18
A company takes out a sustainability-linked loan. Which feature distinguishes it from a green loan?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The loan can be used for general purposes, but its interest rate varies depending on whether the company meets pre-agreed sustainability performance targets
Explanation
Sustainability-linked loans link the borrowing cost to the borrower's performance against sustainability KPIs, such as emission reductions, rather than restricting how the money is spent. Green loans, like green bonds, restrict the use of proceeds to eligible green projects. Neither type is interest-free or automatically repayable on making a loss.
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