The Loan Syndications and Trading Association (LSTA) (the US equivalent of the Loan Market Association (LMA)) recently released a template Environmental, Social and Governance (ESG) questionnaire to provide lenders with their first standardised tool to carry out diligence into the ESG profile of their customers. The questionnaire, which is designed to be applicable to all borrowers across all industries, regardless of their current ESG efforts, addresses the information and data flow that increasing numbers of lenders have identified with their own ESG conscious investors.
The move by the LSTA goes a step further than the LMA, who to date rely on the green loan and sustainability-linked-loan principles they established with the LSTA to help address ESG issues. This would appear to be a result of the different lender make-up in the two markets, with Europe being traditionally bank-led compared to the more fund/institutionally-led US market. However, the announcement by the LSTA will have particular resonance with those European lenders who are not writing loans with sustainability performance objectives and whose focus will be on the ESG reporting of their customers.
At a time when the calls for a more standardised ESG reporting and accounting framework are becoming increasingly louder, this is a welcome development for both the US and the European loan markets and may help to give lenders some of the answers they need in addressing ESG factors.