As part of the UK’s Financial Conduct Authority’s (FCA) efforts towards strengthening trust in sustainability finance, the FCA has in December 2025 published a consultation paper on ESG ratings and the proposed approach to regulations thereof in the UK.
The FCA’s December 2025 consultation paper sets out the following, which supports that the market for sustainability-linked loans (SLLs) has matured and is expected to mature further:
The FCA reported in August 2025 that despite apparent headwinds, it had seen the market for SLLs maturing since 2023. This is in line with what we have seen in the Danish market. The following observations are key takeaways:
The FCA’s August 2025 newsletter can be found here Sustainability-linked loans market: 2 years on | FCA and the FCA’s December 2025 consultation paper can be found here: CP25/34: ESG (environmental, social, governance) ratings: proposed approach to regulation.
The FCA has noted the following developments since 2023:
A shift from numerous, disjointed SPTs to two or three core SPTs and KPIs that are material and strategically significant to the borrower’s business model.
This trend is in line with what we have seen in the Danish market. As for the selection of SPTs and KPIs, we have on nearly all SLL-financings seen use of SPTs and KPIs regarding Scope 1+2 CO2-emissions and Scope 3 CO2-emissions, often combined with one additional SPT/KPI which may be more specific to the relevant borrower’s business case.
Considering the general European focus on reducing sustainability-reporting, borrowers who wish to obtain SLL-financing may find it relevant to consider SPTs/KPIs alternative to Scope 3 CO2-emissions. We are closely following market developments in this respect.
An increasing prevalence of several sustainability coordinators and, in some cases, banks engaging bilaterally with the borrower in setting more ambitious SPTs. Each of these trends may contribute to a greater scrutiny of KPIs and SPTs at the stage of structuring the SLL-financing.
We are seeing a similar trend in the Danish market with borrowers which are engaging in SLL-financings becoming increasingly well-prepared and well-advised by banks and internal sustainability-teams alike in respect of selecting and structuring their SPTs and KPIs.
As part of this exercise, borrowers must pay ongoing attention to the ever-developing landscape of laws and other regulations and industry standards of relevance for their SPTs and KPIs.
In March 2025 the LMA published updated sustainability-linked loan principles (SLLP). The SLLP provide a recommended framework to structure and articulate the fundamental characteristics of SLLs. The SLLP are based on the following five core components:
The SLLP should be seen in conjunction with the draft provisions for sustainability-linked loans published by the LMA in May 2023.
These draft SLL provisions have been used as a basis for drafting in numerous SLL-financings in the Danish market, of course tailored for each SLL-financing.
On non-sustainability-linked financings where the parties wish to have the option for the financing to become an SLL-financing down the road, the draft SLL provisions can be included from the offset in the loan documentation, by making them subject to a “switch-on” mechanism following which the financing will become an SLL-financing.
Gorrissen Federspiel is a member of the LMA, and we continuously follow developments in the LMA’s publications on SLL-financings.
The FCA noted that it has seen declassification of the financing as being sustainability-linked being used as a sanction by banks where the borrower has breached the SLL terms of the loan agreement or the loan itself has ceased to meet the banks’ criteria of a SLL.
In the Danish market, we have generally seen lenders paying close attention to ensuring that the terms and triggers of the declassification tool grant the lenders an efficient sanction tool.