How is it different from a green loan?
A green loan focuses on financing eligible environmental projects. Sustainability-linked financing focuses on improvements measured against agreed targets; it can support general business purposes, subject to the facility's permitted uses.
Scroll sideways to read the table ↔
| Your starting point | Route to explore | What sits at the centre of it |
|---|---|---|
| “We want to finance an eligible solar installation.” | Green loan or green Islamic financing | The project, how the money is used and its environmental benefit |
| “We need business financing and can commit to measurable sustainability improvements.” | Sustainability-linked financing | Performance targets and their connection to the financing terms |
The industry Green Loan Principles guidance explains this distinction. A facility can combine both approaches if it meets the relevant components of each.
If your main need is a particular environmental investment, start with our green-loans guide. If you're still weighing several options, use how to choose a financing route.
Get comfortable with three terms
These terms describe different parts of the same plan:
- Key performance indicator (KPI): what you measure, such as water used per unit of production.
- Baseline: the starting measurement you compare future results with.
- Sustainability performance target (SPT): the result you agree to reach by a specified date.
Here's a made-up example to make the difference clearer. A manufacturer records water use of 10 litres per unit during an agreed baseline year. It proposes reducing that to 8 litres per unit by an agreed future date—a 20% reduction.
The KPI is water use per unit. The baseline is 10 litres. The target is 8 litres by the deadline.
Those numbers are only an illustration. They do not establish an acceptable target for a bank. Before taking a proposal forward, you would need to explain the records, which operations are included and why the improvement matters for your business.
What should a credible arrangement include?
The March 2025 Sustainability-Linked Loan Principles, developed by three loan-market associations, set out five components:
- Relevant measures: KPIs should address significant sustainability issues in the business.
- Ambitious targets: improvements should go beyond business as usual and regulatory requirements.
- A link to loan terms: the agreement explains how performance affects financial or structural terms.
- Reporting: lenders receive performance information at least annually and for assessment periods that could change the terms.
- Verification: independent external verification of performance is required for those assessment dates or periods.
These are voluntary industry principles. Their requirements describe alignment with that framework; the financing agreement establishes your contractual obligations.
The Loan Market Association's practical overview also explains that annual targets can have justified exceptions. Reporting, target dates and verification dates therefore deserve separate attention when you review an offer.
Choose an improvement your team can explain and deliver
Start with a conversation between finance and the people running the relevant operations. What needs to improve? What records do you already have? What action would change the result?
For the manufacturer in our example, useful questions might be:
- Where does most of the water go, and can we measure it reliably?
- Would fixing leaks, changing equipment or reusing water make the proposed improvement possible?
- What would those actions cost, and who would manage them?
- How would we compare results if production volumes or the product mix changed?
Keep the measurement method clear. Water per unit and total water use answer different questions. A reduction in one does not automatically mean a reduction in the other.
Bring uncertainties into the discussion early. An equipment upgrade may depend on a supplier's delivery date or a production shutdown. Your target proposal should explain those dependencies rather than leave the bank to discover them later.
The subject can extend beyond energy and emissions. The Loan Market Association's overview discusses environmental and social objectives, including emerging nature-related measures. The appropriate choice depends on the business and the proposed facility; a topic appearing in guidance does not establish product eligibility.
A Malaysian example: CIMB's programme
CIMB's Sustainability-Linked Financing page describes a programme where achievement of targets agreed with the bank determines eligibility for a financing rebate.
Its English terms, version 2.0 dated September 2026 state that commercial-banking customers may apply on conventional and Islamic facilities. Rebate eligibility is assessed by calendar year, with an eligible rebate rewarded in the following year. Customers must update information in a carbon-management platform, and independent checking and verification is conducted.
The terms give a rebate period of up to seven years, with a latest end date of 31 May 2030. Ask the bank how that cutoff applies to a facility starting now, and distinguish the programme's rebate period from the financing facility's repayment term. The programme remains subject to bank approval and the financing agreement.
For an enquiry, the product page directs readers to a relationship manager or the bank's sustainable-finance contact. Confirm the offer available to your business, the target conditions and all costs. This example explains one published programme; it does not establish how other banks structure their facilities.
Compare the whole cost, including the work behind the target
A potential rebate is one part of the decision. You still need to fund the improvements and maintain the evidence.
Ask for enough information to compare:
- The financing payments, fees and any security required.
- The proposed benefit, when it is assessed and when you receive it.
- Equipment, operational and staff costs needed to deliver the improvement.
- Data tools, reporting support and verification costs, including who pays them.
- The result if you miss a target, submit information late or cannot verify the figures.
Request a comparison showing both a target-achieved and a target-missed outcome. Establish whether missing the target removes a rebate, increases a charge or has another contractual consequence. Avoid budgeting as though the best outcome has already happened.
The Loan Market Association's overview identifies verification costs as a practical challenge for some borrowers. It also notes that information already verified for other reporting may not need duplicate verification under the principles. Ask whether existing evidence covers the required measure, period and scope.