Sustainability-linked loans (SLLs) remain a useful transition financing tool, and we are encouraged by the progress we’ve seen in the market since 2023.

We’ve published a follow-up letter (PDF) to share insights from our ongoing engagement with banks active in the SLL market, as part of being a smarter regulator and to deepen trust in the market.

SLLs can be a useful transition financing tool for borrowers wanting to improve their overall sustainability performance.

Since our previous letter in 2023 (PDF), which highlighted some concerns, we’ve seen the market for SLLs mature, with better practice and more robust product structures.

There are still barriers to scaling the SLL market and some concerns around incentives, but the improvements we’ve observed are important steps in the development of a credible transition finance ecosystem.

Two years on, we hope these insights will help a wider group of firms in the SLL market learn from both the experience of others and our observations.

Next steps

Our strategy 2025 to 2030 (PDF) sets out our role in supporting the growth of the financial services sector and UK economy. A crucial aspect of this is unlocking the sector’s potential to channel capital into managing the risks and opportunities of the transition to net zero.

We will continue to monitor the SLL market as part of our wider work on transition finance, and welcome further constructive dialogue with banks.

We will also work closely with the Transition Finance Council (TFC) to promote the competitive position of the UK as a transition finance hub, in line with the Government’s ambitions.

We encourage banks to engage collaboratively with the TFC’s work, to build alignment in approaches to transition finance.

Source: FCA