Finance Solutions for Nature 2025

2.2 Sustainability-linked loans and thematic loans SLLs and thematic loans are mature loan categories for corporates, sovereigns and nature-positive projects. Overview Sustainability-linked loans (SLLs) are outcome- based loans with interest rates tied to the borrower’s environmental or social KPIs. Missed targets trigger a rate increase, while overperformance can reduce rates further. Thematic loans are commercial debt instruments whose use-of-proceeds is earmarked for specific environmental and social projects. They are also known as GSS loans. Both types are multisectoral: SLLs are typically issued to corporates or sovereigns, while thematic loans are typically issued to public or private project developers. They are structured and capitalized by financial institutions seeking competitive returns, thematic alignment and market differentiation. Governments may also access MDB policy- based loans. Multiple standards support best practices in structuring and verifying loan performance. These include ICMA43 and Loan Market Association (LMA)44,45 principles on green and sustainability- linked loans (covering KPIs, eligibility, reporting and verification), IFC’s Biodiversity Finance Reference Guide46 and MSCI’s frameworks for nature-aligned lending.47 Potential to mobilize capital for nature In 2024, labelled loans reached an overall value of ~$982 billion, with SLLs comprising 72% of volume (up 22% annually).48 Nature-related loans remain a smaller share, possibly due to limited demand and unclear classification of water or land projects. Borrowers and lenders often favour SLLs for their flexible use-of-proceeds, especially in nature- intensive sectors without mature green capex pipelines. They are popular in “transition finance” strategies and can be more competitive amid shrinking greeniums and lower compliance costs. In a global context where investors are less willing to pay more for green products, SLLs will therefore remain competitive. Loans are familiar instruments with strong mobilization potential. Banks increasingly integrate nature into lending books, supported by growing guidance from advisers and standards bodies.49,50Both SLLs and thematic loans support credit access across project sizes. SLLs typically range from $50 million to $5 billion, while thematic loans range from $5m to $500 million. Loans require fewer disclosures (though best practices are similar to bonds) and can be customized or enhanced through guarantees – Brazil’s CPR Verde offers an example.51 Ability to price nature into markets In principle, both loan varieties can indirectly assign financial value to nature. Thematic loans ringfence use-of-proceeds for nature projects but do not directly “price” ecosystem improvements. SLLs, by contrast, link interest rates to performance against KPIs, offering stronger incentives. Loans have shown a more consistent track record for nature outcomes than bonds, supported by closer lender engagement and greater structural flexibility. Thematic loans have contributed to measurable emissions and impact reductions, though concerns remain over transparency and reporting.52 SLLs face similar limitations to SLBs: penalty rates are often modest, trigger dates are delayed and structures risk misaligned incentives. Pathways to mainstream Scaling-up loans requires broader adoption and alignment of existing guidance, including nature taxonomies, project metrics, financial accounting treatment and integrating use of natural capital accounting. Blended finance blueprints will be key for sectors such as blue infrastructure and agri- biodiversity. Progress depends on collaboration between regulators, investors, implementers, data platforms and standards bodies. Securitization and aggregation can help to scale up loans, the former by freeing up bank balance sheets and the latter by drawing in additional investors. Sustainability-linked loans financing bonds (SLLBs), a form of aggregation, are being explored to bring loans into public markets and enhance transparency.53 Blending concessional and commercial tranches of loans is also an option to increase scale. Many pathways to scale up SLLs mirror those for SLBs, particularly how lending rates are structured and applied. Loans have shown a more consistent track record for nature outcomes than bonds, supported by closer lender engagement and greater structural flexibility. Finance Solutions for Nature: Pathways to Returns and Outcomes 18