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Internationally, it has been a growing trend in the past years, and we are currently experiencing a growing number of sustainable and green loans in the Danish market. This is a trend, which will grow even more in Denmark in future, and we are increasingly experiencing that sustainability is a natural part of the financial undertakings’ dialogue with their clients and investors.
Green loans are loans, where the proceeds must be used for green/sustainable purposes or projects, while sustainability-linked financing are loans, where the price of the loan (i.e. the size of, for instance, margins or fees) depends on whether the lender meets certain sustainability goals (KPIs) specified in the loan agreement. Thus, sustainability-linked loans do not necessarily need to be used for specific green/sustainable purposes.
Entering into green loans or sustainability-linked financing require thorough preparation by both parties. The financial undertaking must understand the green and sustainable objectives; the parties must together fix ambitious goals (KPIs) on which the pricing will depend and they must discuss, how meeting these goals must be documented and verified going forward.
Subsequently, the framework and the principles must be incorporated into the relevant loan agreement in a manner that renders it clear to everyone, how this will be handled going forward.
Gorrissen Federspiel assists financial institutions as well as lenders in relation to preparing green and sustainability-linked loans, both in relation to the important preparation phase, but especially also in relation to the preparation of the documentation.
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The debt capital market, particularly relating to bond issuances, has and will have a great impact on the financing of the sustainable transition and on reaching Denmark’s and the EU’s ambitious climate goals.
The market and the framework of sustainable bond issuances are subject to fast-growing and constant development. In relation to the legislative initiatives, but particularly also in relation to market changes. While this development is booming, issuers and arrangers of sustainable bond issuances must consider a number of issues and choices in relation to structuring the sustainable bond, including:
Financial as well as non-financial undertakings can issue sustainable bonds. Mortgage credit institutions already issue green covered bonds, and the European Banking Authority (EBA) focuses on credit institutions’ possibility of issuing non-preferred senior debt instruments (MREL debt) and other own funds instruments (Additional Tier 1 capital and Tier 2 capital) as sustainable bonds.
Gorrissen Federspiel assists issuers (financial and non-financial undertakings), arrangers and other market players in relation to issuing sustainable bonds in respect of stand-alone bond issues as well as in relation to updating and planning bond issuances programmes.
Sustainability, ESG, CSR, green transition, corporate social responsibility. The concepts are numerous, but they all cover a global megatrend where traditional soft law turns into hard law and thus becomes a serious factor, which Danish undertakings must size up and adapt to.
The movement towards binding rules governing sustainability leads to increased focus on governance, internal processes and controls and reporting on sustainability. It is necessary for financial as well as non-financial undertakings to incorporate sustainability requirements in the undertaking’s general processes, business models and risk management.
The Taxonomy Regulation ((EU) 2020/852 of 18 June 2020) has established a unified European classification system for sustainable economic activities, and with the Disclosure Regulation ((EU) 2019/2088 of 27 November 2019) specific requirements apply to the publication of sustainability‐related (ESG) disclosures in the financial services sector. The Disclosure Regulation imposes, inter alia, obligations on financial advisers and market players to prepare policies for sustainability-related risks, to integrate sustainability-related risks in the remuneration policy and to assess whether investment decisions consider negative effects on sustainability-related factors.
The Corporate Sustainability Reporting Directive ((EU) 2022/2464 of 14 December 2022), which was adopted in a final version in late 2022, amends the current directive on non-financial reporting (in Denmark implemented primarily in section 99 a of the Danish Financial Statements Act) and imposes significantly stricter ESG reporting requirements on the undertakings that are within the scope of the Directive.
From a Danish perspective, the Recommendations on Corporate Governance also include recommendations on corporate social responsibility, sustainability and the company’s purpose.
Further EU rules are in the pipeline, including mandatory due diligence (Corporate Sustainability Due Diligence Directive). Gorrissen Federspiel follows the development closely and we assist our clients in complying with the new regulatory requirements as well as we provide assistance in relation to strategic advice and in respect of sustainability. In addition, we advise on corporate governance, including at board level, and on establishing relevant internal processes and controls in relation to sustainability.