Sustainability-Linked Loans in 2025: What KPI and SPT Calibration and Pricing Ratchets Really Mean for CFOs
- Gasilov Group Editorial Team
- Nov 25
- 13 min read
Executive Summary
Sustainability linked loans have entered a tougher phase in 2025. Regulators, lenders, and civil society now expect KPI choices, SPT ambition, and pricing structures to reflect real transition progress rather than business as usual targets. Updates to the Sustainability Linked Loan Principles and growing supervisory focus across the EU and UK mean that facilities closed even a few years ago no longer meet the market standard. For finance leaders planning new transactions or refinancing older ones, this shift has real financial and reputational consequences.
In this environment, CFOs need to treat KPI and SPT design as part of capital structure planning, not as a late stage ESG add on. Lenders increasingly benchmark SPTs against science based pathways, scrutinise Scope 3 coverage, and expect KPIs to align directly with a company’s transition plan. Pricing ratchets are also under sharper review, with pressure for margin adjustments large enough to influence behaviour at board level and to withstand public scrutiny. Structures that rely on soft targets or symbolic incentives are now more likely to attract criticism and face delays in credit approval.
The companies that succeed in this market will be those that integrate sustainability linked financing into their broader governance, data, and disclosure systems. A disciplined approach to KPI selection, SPT calibration, and ratchet design helps reduce greenwashing risk and strengthens credibility with lenders and investors. Done well, an SLL can reinforce a company’s transition narrative and improve access to capital. Done poorly, it can undermine trust and expose the organisation to scrutiny from supervisors and media.
What KPI/SPT Calibration and Pricing Ratchets Really Mean for CFOs
Sustainability-linked loans have moved from niche product to mainstream treasury tool, but in 2025 they sit in a far less forgiving environment. Regulators, investors, and civil society are all asking whether margin reductions are truly earned, and whether “sustainability-linked” labels reflect anything more than business-as-usual targets. The 2025 update to the Sustainability-Linked Loan Principles (SLLP) sharpened definitions of ambition, materiality, and verification, and removed earlier grandfathering comfort for “in flight” deals, which means refinancings coming to market now will be judged against a higher bar than structures closed only a few years ago.
Given this context, CFOs who still treat SLL terms as an afterthought in the term sheet are taking real financial and reputational risk. One recent newsletter from BBVA CIB noted that the global sustainable loan market reached about EUR 907 billion in 2024, up roughly 17 percent on the prior year, which confirms that sustainable lending remains a core channel for large corporates. At the same time, Environmental Finance data show that sustainability-linked loan issuance in the first half of 2024 was about 32 percent lower than the same period in 2023, which signals lender caution where structures are weak or exposed to greenwashing criticism.
Against that backdrop, the central question for finance leaders is no longer “should we consider an SLL” but “how do we calibrate KPIs, SPTs, and pricing ratchets so that lenders, boards, and external stakeholders all see the structure as credible and value accretive”.
The 2025 SLL rulebook: sharpened expectations on KPI and SPT ambition
The 2025 SLLP updates matter for CFOs because they translate directly into how banks will underwrite and price new sustainability-linked facilities. Slaughter and May’s 2025 briefing on the updated Principles highlights three shifts that are particularly relevant at the deal table: clearer separation between mandatory and recommended features, removal of explicit grandfathering for older transactions, and refined criteria for KPI and SPT selection that now emphasize consistency with the borrower’s overall sustainability strategy and external verifiability wherever feasible.
For KPI selection, the Principles reiterate double materiality. In practice this means lenders will look for indicators that are financially material to the business, such as energy intensity or methane leakage for an energy company, and also material in terms of environmental or social impact. The updated guidance explicitly allows KPIs to be internally or externally derived, including certain ESG ratings, but stresses that borrowers should be able to justify why a given KPI is core to the business rather than chosen for convenience.
On SPT calibration, the SLLP now state more clearly that targets must move beyond both business-as-usual trajectories and the borrower’s regulatory obligations. For a European issuer subject to the Corporate Sustainability Reporting Directive, which applies from the 2024 financial year with first reports published in 2025, this practically means that SLL targets anchored only in already disclosed compliance pathways under CSRD will struggle to qualify as “ambitious”. Lenders increasingly benchmark SPTs against science-based pathways, Nationally Determined Contributions, or the ICMA KPI Registry, even where the KPIs themselves are loan-specific.
We have seen that, when these alignment questions are not addressed early between finance, sustainability, and the lending syndicate, transactions drift into prolonged documentation rounds, often with difficult conversations around whether the facility still merits an SLL label. For CFOs, the implication is simple: KPI and SPT design should now be treated as part of capital structure strategy, not as a late-stage ESG overlay.
What lenders now expect from KPI design: lessons from Tesco and Vodafone
Concrete examples from public markets illustrate how expectations have evolved. Tesco’s GBP 2.5 billion sustainability-linked revolving credit facility, first launched in 2020 and refinanced in 2022, links margin adjustments to three KPIs that sit at the heart of its business model: reduction of Scope 1 and 2 greenhouse gas emissions by 60 percent by FY 2025/26 relative to a FY 2015/16 baseline, progress on gender and ethnic diversity in senior leadership, and reduction of food waste. This structure is described in Tesco’s sustainability-linked financing disclosures and in an IFAC case study on the company’s net zero journey. The lesson for CFOs is that lenders are more comfortable when KPIs clearly map to the company’s most material ESG themes and to core strategy rather than to peripheral initiatives.
A second illustration comes from Vodafone’s sustainable and sustainability-linked finance framework. In a 2021 second party opinion from Sustainalytics, KPI 1 aggregates the group’s Scope 1, 2, and 3 emissions, with SPTs that include a 95 percent reduction in Scope 1 and 2 emissions and a 50 percent reduction in Scope 3 emissions by 2030, both against a 2020 baseline. Sustainalytics characterises the associated SPT as highly ambitious because it outperforms historical performance, sits ahead of many peers, and aligns with a 1.5 degree scenario. For treasury and finance teams, this is a template for SPT calibration that can withstand external scrutiny.
In our experience, SLLs built around narrow operational KPIs that lenders view as already budgeted or low-hanging fruit often fail in credit committees, even when the headline margin step-up looks punitive. Lenders now compare proposed KPIs with the company’s broader transition plan, regulatory disclosures, and peer transactions, and they look for coherence across those elements.
At this stage of the market, many banks also want comfort that the underlying ESG data and controls are converging toward regulatory standards. The European Banking Authority’s final Guidelines on the management of ESG risks, published in January 2025, expect banks to integrate ESG risks into credit risk processes and to assess clients’ transition plans and quantitative targets over different time horizons.
If you are planning a new facility or refinancing a legacy SLL, this is the right moment to bring in external support to stress test KPIs, align them with your transition plan, and anticipate lender pushback before term sheets circulate. This work usually pays for itself through smoother execution and stronger credibility with boards and stakeholders. Our team can help benchmark KPIs, shape ambitious and defensible SPTs, design pricing ratchets that reflect transition value at stake, and prepare focused materials that address likely questions from lenders and credit committees.
Once KPIs are defined, the next question is how to translate them into SPTs and pricing mechanics that actually change behaviour rather than simply re-labelling the loan. That is where SPT calibration and pricing ratchets now face far closer scrutiny from banks, regulators, and media.
SPT calibration that withstands regulatory and market scrutiny
Second, companies should treat SPT setting as an exercise in transition planning, not as a negotiation over a few basis points. The Climate Bonds Initiative guidance on sustainability linked bonds highlights several qualities that are now widely applied to loans as well. SPTs should use absolute or physical intensity metrics where possible, include Scope 3 emissions if they are material, and align with recognised reporting standards and pathways, including ICMA’s KPI Registry.
A useful reference point is Enel, headquartered in Italy, which has built a suite of sustainability linked instruments over the past decade. In 2020, Enel adopted a sustainability linked financing framework that ties instruments to targets such as the percentage of renewable generation capacity and the reduction of greenhouse gas emissions intensity across its fleet. According to Enel’s public framework and related analyses, if the company fails to meet specified thresholds for renewable generation share by agreed dates, coupon or margin step ups apply in its bonds and loans. The outcome has been a structure that is simple to monitor, anchored in the core business model, and clearly aligned with the group’s public decarbonization strategy.
In February 2025, Enel signed a new 12 billion euro committed revolving credit facility linked to climate indicators, again with a step up and step down mechanism based on SPT achievement. The company notes that the margin will move depending on performance against selected environmental targets, reinforcing the integration of transition objectives into treasury decisions.
Academic work is also converging on what “good” looks like. A 2023 paper by Auzépy and co authors, “Are sustainability linked loans designed to effectively incentivize corporate sustainability”, reviews a large sample of SLL contracts and concludes that many structures still rely on relatively soft targets, often focused on short term operational improvements. A 2025 study by Bing and co authors on greenwashing in SLLs, published in Energy Economics, goes further and identifies weak SPTs on carbon emissions as a key source of greenwashing risk, especially where Scope 3 emissions are excluded for fossil fuel intensive borrowers.
For CFOs, the implication is that SPTs which only marginally outperform forecast trends or that explicitly carve out the most material emissions categories are now high risk. Lenders, civil society, and in some cases regulators will ask why the targets were not aligned with the borrower’s own net zero or transition plan, or with sectoral guidance such as that promoted by ICMA and supervisory authorities.
A practical starting point is to map each potential KPI to:
Our work with clients shows that SPT discussions move faster when this mapping is done in advance and shared with relationship banks, ideally alongside a concise explanation of why certain pathways were chosen and others discarded.
Pricing ratchets that are meaningful, not symbolic
Third, CFOs should view SLL pricing ratchets as part of an overall incentive system, not as a cosmetic add on. Early sustainable loans often adopted a one way margin reduction for KPI outperformance. Legal commentary from Osborne Clarke in 2020 notes that the market then shifted toward two way structures in which both step up and step down margins apply, to strengthen incentives and reflect the fact that lenders also carry reputational risk if targets are missed.
At the same time, some high profile transactions show that small ratchets may not be enough to build credibility. Enel’s 2019 sustainability linked bond included a 25 basis point coupon step up if the company failed to reach a 55 percent share of renewable generation capacity by the end of 2021, as highlighted by Norton Rose Fulbright.
By contrast, several investigative pieces have criticised SLLs in carbon intensive sectors where margin adjustments are small relative to the borrower’s cost of capital. An Associated Press investigation in 2024 reported that companies such as Shell, Enbridge, and Drax secured large sustainability linked loans that were marketed as green finance, yet continued to expand fossil fuel related activities, raising doubts about whether the loans had any real influence on strategy. Environmental groups have raised similar concerns about a 2024 financing package for Eni, which included both a sustainability linked bond and loan arranged by Barclays in the United Kingdom, and where campaigners argued that Scope 3 emissions were not adequately covered.
Given this experience, lenders in 2025 increasingly look for three features in pricing mechanics:
A step up that is material enough to be visible at board level, often supported by clear disclosure of the potential cost in investor presentations
A symmetrical or at least balanced step down that still leaves the lender comfortable with the risk return profile
A structure in which partial achievement of SPTs leads to proportionate outcomes, rather than binary all or nothing triggers
In our experience, SLLs often fail to influence behaviour when the ratchet is set late in the process, based solely on what the borrower considers affordable, instead of being linked to the value at stake in the transition plan. Treating the ratchet as an incentive design question, tested in financial scenarios and discussed openly with lenders, tends to produce cleaner and more respected structures.
Managing greenwashing risk and supervisory attention
Fourth, companies should assume that SLLs will be scrutinised not only by credit committees but also by supervisors, investors, and media. ESMA’s 2024 Final Report on greenwashing in the EU financial sector stresses the need for consistent supervision of sustainability related claims and notes that supervisory authorities expect robust evidence for any product labelled as sustainable. Stibbe’s 2023 review of sustainable finance enforcement highlights several corporate lending examples where weak SPTs or vague KPI definitions raised concerns.
This scrutiny is not theoretical. Environmental Finance reported in 2024 that concerns about missed targets and greenwashing have contributed to lower issuance of SLLs, as some borrowers hesitate to accept more stringent terms while others prefer to step back from the label altogether. For borrowers who remain in the market, the bar is higher but the payoff can be better access to capital and a stronger narrative with investors.
To manage this environment, CFOs and CROs should ensure that SLLs sit within a broader governance framework. That includes clear internal ownership for KPI data, alignment between loan reporting and sustainability disclosures, and a consistent approach to external assurance. The European Central Bank’s guide on climate related and environmental risks expects banks in the euro area to integrate such risks into governance, risk appetite, and credit processes, and banks in turn are asking their clients to do the same.
A practical mid course check for any planned SLL is to ask whether the company would be comfortable if an NGO, a supervisor, or an investigative journalist reviewed the facility in detail. If the answer is uncertain, that is often the moment to revisit SPT ambition, Scope 3 coverage, or ratchet size, often with external support.
A CFO agenda for the next 12 months
Finally, CFOs who want SLLs to work as strategic tools rather than PR devices can focus on three priorities over the next year. First, companies should align sustainability linked financing with their overall sustainability and ESG strategy, including any net zero or transition plans, so that KPIs and SPTs reinforce existing commitments rather than sit beside them. Reference points such as ICMA’s KPI Registry and the Climate Bonds Initiative’s guidance can help anchor this discussion in recognised market practice.
Second, companies should address Scope 1, Scope 2, and, where material, Scope 3 emissions by building data and control systems that are fit for both regulatory reporting and SLL verification. Supervisory work by ESMA and the ECB, as well as evolving EU rules on green labels and fund naming, point in the same direction, which is a world where weak or unsubstantiated sustainability claims carry real reputational and financial risk.
Third, treasury, sustainability, risk, and legal teams should work together on a structured playbook for SLLs. That playbook should cover KPI selection, SPT calibration, pricing ratchet design, disclosure, and assurance. It should also set out when and how to involve banks, ESG rating agencies, and second party opinion providers. For many companies, an external adviser can help accelerate this process, pressure test market benchmarks, and provide an independent view of what lenders are likely to accept in 2025.
A well structured SLL will not replace a credible transition plan, but it can send a clear signal to banks and investors that the company is serious about linking financing terms to real progress.
If you would like support in designing or revisiting SLL structures, from KPI and SPT design to pricing mechanics and governance, our team can work with your finance and sustainability leaders to build arrangements that withstand scrutiny and create value.
Written by: Gasilov Group Editorial Team
Reviewed by: Rafael Rzayev, Partner – ESG Policy & Economic Sustainability
1. How should a CFO decide which KPIs to use in a sustainability linked loan in 2025?
CFOs should start with the company’s material ESG issues and core strategy, not with a generic list of indicators. The most credible SLLs typically use a small set of KPIs that are central to the business model, such as emissions intensity for a utility, product energy efficiency for a manufacturer, or diversity in senior management for a service group. Those KPIs should align with the company’s transition plan and with external frameworks such as the ICMA KPI Registry, and they should be measurable with data that can be verified by an external party. KPIs that are peripheral, easy to achieve, or inconsistent with public targets are increasingly viewed as greenwashing risks by lenders and regulators.
2. What is a realistic but ambitious SPT for a sustainability linked loan, and how can companies benchmark it?
A realistic but ambitious SPT is one that goes beyond business as usual, beyond regulatory minimums, and is consistent with recognised transition pathways for the sector. Companies can benchmark ambition by comparing their proposed trajectory with peers’ public targets, sectoral pathways such as 1.5 degree scenarios, and guidance from organisations like the Climate Bonds Initiative and ICMA. Where emissions are material, SPTs that ignore Scope 3 or rely solely on relative metrics are now often challenged. A useful test is whether an independent analyst could understand the target and see how it accelerates the company’s existing plan rather than simply restating it.
3. How large should pricing ratchets be in sustainability linked loans to have real impact?
There is no single answer, but market experience offers some guideposts. Structures with very small margin adjustments rarely influence behaviour at board level and may be criticised as symbolic. Examples such as Enel’s 25 basis point coupon step up in its sustainability linked bond, triggered if a renewable generation target was missed, show that meaningful ratchets can be justified when targets are central to strategy and clearly disclosed to investors. The key is to calibrate step ups and step downs through financial scenario analysis and open discussion with lenders, so that the incentive is material but still compatible with the company’s credit profile.
4. How can companies reduce greenwashing risk in sustainability linked loans, especially for carbon intensive sectors?
Companies can reduce greenwashing risk by ensuring that KPIs and SPTs address the most material environmental impacts, by aligning targets with their transition plans, and by disclosing methodologies, baselines, and verification approaches in a transparent way. For carbon intensive sectors, this often means including Scope 3 emissions where they represent the majority of the footprint, and avoiding vague or intensity only targets that allow absolute emissions to rise. Regulators such as ESMA, and investigative reporting on loans to fossil fuel companies, show that weak SPTs and exclusions are a focal point for criticism. Clear governance, robust data, external assurance, and alignment with supervisory guidance are therefore essential.
5. How do evolving regulations in the EU and UK affect sustainability linked loan structures in 2025?
Regulation is shaping both the supply of SLLs and expectations on quality. In the EU, ESMA’s work on greenwashing and new guidelines on sustainable fund names increase the cost of weak sustainability claims across the financial system. The ECB’s guide on climate related and environmental risks expects banks to integrate these risks into credit processes, which in turn affects how they assess clients’ transition plans and SLL structures. The UK is also tightening climate risk management expectations for banks. For borrowers, this means that SLLs are no longer treated as purely bilateral arrangements. They are now seen as potential signals to supervisors and investors, so structures that are not aligned with regulatory trends may face pushback or require revision at refinancing.