In the past 18 months, sustainable finance has seen the rise of the positive incentive loan (PIL), which rewards borrowers who meet certain environmental, social and governance (ESG) metrics. Thames Water’s £1.4bn ($1.8bn) PIL was the first for a UK corporate, and was provided by a syndicate of banks and coordinated by BNP Paribas.
With a PIL structure, the interest paid on the loan is determined by whether or not the borrower achieves particular ESG goals. This might be a specific key performance indicator (KPI), or group of KPIs, often using metrics from the company’s sustainability report such as greenhouse gas emissions. It could also be an overall ESG score provided by an ESG rating agency.
