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Social loans are a tool for lenders and borrowers to measure impact and minimise risk.

Social loan principles, beyond good intentions

Social loan principles aren't just a feel-good gesture - they're a key player in helping lenders, borrowers and other stakeholders mitigate social issues and challenges, providing a yardstick by which to measure impact.

Social loans are loans or facilities made available to finance, re-finance or guarantee, in whole or in part, new or existing eligible projects, which provide clear benefits of a social nature (Social Projects).

Social Project categories may include, but are not limited to:

  • providing or promoting affordable basic infrastructure
  • access to essential services
  • affordable housing
  • food security
  • sustainability
  • employment generation
  • socioeconomic advancement and empowerment


Revisions to the best practice principles in 2023 represent progress by better promoting transparency and providing greater clarity on the scope and application of the SLPs. 

In 2021, the Asia Pacific Loan Market Association (APLMA), UK-based Loan Market Association (LMA) and US-based Loan Syndications and Trading Association (LSTA) (together, the Joint Associations), published the Social Loan Principles (SLPs). These principles were developed to establish best practices and market standards in social lending, while allowing the loan product to retain its flexibility. Earlier this year, the Joint Associations published revised versions of the SLPs.

Why use social loans?

The Joint Associations have identified the following advantages for both borrowers and lenders in documenting a social loan:

  • positive impact on target populations, broader society, reputation and credibility;
  • building strong, values-based relationships with stakeholders;
  • helping to deliver the UN Sustainable Development Goals;
  • gaining greater access to a diverse pool of investors, particularly those seeking investment with a positive social focus; and
  • meeting regulatory, strategy and policy targets/commitments.

Recent updates – February 2023

The SLPs were recently updated in February 2023. As such, all loans originated, extended or refinanced after 9 March 2023 must fully align with this version of the SLPs to be classified as a ‘social loan’. 


Updated feature

2023 SLP guidance


Eligible Finance Products for SLP categorisation

  • The SLP now clearly apply to contingent loan instruments, with bonding lines, guarantee lines and letters of credit specifically referenced. This also extends to revolving credit facilities.
  • The SLP also provide that a social loan may take the form of one or more tranches within a loan facility.
  • This change reflects developments in the markets, where major banks have been wanting to label trade finance products as social.
  • A facility cannot be labelled as wholly social if it includes both social and non-social tranches. The social label will only apply to the tranche that aligns with the four core components of the SLP.

Clarification that ‘use of proceeds’ includes assets and related expenditures

  • Social Projects now include assets, investment and other related and supporting expenditures such as R&D.
  • The categories of eligible Social Projects have been expanded.

This tackles a concern that parties have had for some time.

Process for project evaluation’ and selection improved

  • Borrowers are now more clearly encouraged to provide full information on processes to identify and manage perceived, potential or actual environmental and social risks associated with the project.
  • Also requires borrowers to provide information on how its project aligns with different taxonomies, external standards and certifications.
  • Borrowers now need to communicate both the social objective and the target population of their Social Projects.

This reflects the direction of travel for green taxonomies currently being developed by regulators such as the EU Taxonomy and the EU’s Non-Financial Reporting Directive.

Management of proceeds for mixed purpose facilities

  • Where a loan facility has one or more tranches (i.e. one tranche that is applicable to the Social Project), that tranche must be clearly labelled as social, with proceeds of the social tranche credited to a separate account or otherwise tracked in an appropriate manner.

The proceeds can be managed per loan or on an aggregated portfolio approach.

Additional documentary considerations

Added the following as important considerations for drafting social loans:

  • disclosure;
  • conditions precedent;
  • no communication;
  • social loan coordinator; and
  • declassification.

Discussed in more detail below.

Core components

The SLPs consist of a framework, made up of four core components:

  • use of proceeds;
  • process for project evaluation and selection;
  • management of proceeds; and
  • reporting.

Use of proceeds

The key determinant of a social loan is the use of the loan proceeds for a Social Project. The SLPs require that a Social Project aim to address or mitigate a social issue and achieve positive social outcomes for a target population. Eligible Social Projects include, but are not limited to, projects that provide or promote:

Affordable basic infrastructure (e.g. clean drinking water, sanitation, transport, energy)

Access to essential services (e.g. education and vocational training, public healthcare, financing and financial services)

Affordable housing

Employment generation and programs designed to prevent and/or alleviate unemployment stemming from socioeconomic crises

Food security and sustainable food systems (e.g. physical, social and economic access to safe, nutritious and sufficient food, resilient agricultural practices, reduction of food loss and waste, and improved productivity of small-scale producers)

Socioeconomic advancement and empowerment (e.g. equitable access to and control over assets, services, resources and opportunities, equitable participation and integration into the market and society, including reduction of income inequality)


Process for project evaluation and selection

The borrower of a social loan should clearly communicate to its lenders:

The social objectives and the target population of the Social Project

The process by which the borrower determines how the project to be funded fit within the eligible Social Project categories
Any social standards or certifications referenced in project selection Complementary information on the processes by which the borrower identifies and manages potential social and environmental risks associated with the project


This information should be positioned within the context of the borrower’s overarching objectives and strategy. 

Management of proceeds

The proceeds of a social loan should be credited to a dedicated account or otherwise tracked by the borrower in an appropriate manner (for transparency and integrity).


Borrowers should make and keep readily available, up-to-date information on the use of proceeds to the lenders. This should be updated at least annually until the loan is fully drawn or loan maturity and on a timely basis in the event of material developments. It should include:

  • a list of the Social Projects to which the social loan proceeds have been allocated,
  • a brief description of the projects,
  • the amounts allocated; and
  • the expected, and where possible, achieved impact.

The Joint Associations recommend the use of qualitative performance indicators, and where feasible, quantitative performance measures and disclosure of the key underlying methodology and/or assumptions used in the quantitative determination.

Further, while this information need only be provided to those institutions participating in the loan, the Joint Associations encourage borrowers, to the extent possible, to make available the latest report on their website, with the preparation date.

Documentation required for Social Loans

While a case-by-case approach is required for social loan documentation due to the varied nature of the market, there are some key considerations to keep in mind when drafting social loans:


Purpose/use of proceeds provisions  – These provisions should clearly set out the eligible Social Project categories.

Information undertakings/covenants – Undertakings/covenants relevant to the Social Project should be clearly identifiable in the loan or facility agreement.

Representations – The borrower should be under an obligation to represent the accuracy of any reporting.

Disclosure – Given the increasing regulatory requirements on financial institutions to make ESG disclosures and subject to any confidentiality requirements, lenders may wish to obtain express consent from the borrower for the lenders to disclose the existence and the details for any social transaction for both internal reporting and external disclosure purposes.

Conditions precedent – Details of any conditions precedents required to confirm alignment of the social loan with the SLPs and/or any other social conditions precedents should be included in the loan or facility agreement.

No communication – Loans and facility agreements should include provisions providing that the parties should hold the communication of the loan or facility as a social loan until such time agreed between the parties. Additionally, where there is a breach of the covenants under the loan or facility agreement, the borrower should cease to refer to the loan or facility as a social loan in any future communications.

Social loan coordinator – the roles and responsibilities of the social loan coordinator (SLC) will likely vary significantly between transactions. As such, there is no market practice on how the role is documented. However, a few questions to consider when drafting provisions relating to the appointment and role of the SLC include:1

  • What will the role and responsibilities of the SLC be? Will it be limited to a pre-signing role, or will they continue to be involved post-signing as well?
  • What level of cooperation is required from the other parties for the SLC to carry out their role effectively?
  • Will any fees and/or expenses be payable by the borrower or lenders to the SLC? How much and when will they be payable?
  • What protections (e.g. limitations on liability, indemnities, arranger/agent-style protections, disclaimers, disclosure, termination provisions, confidentiality provisions) does the SLC require?
  • Should the borrower be required to give any representations and warranties to the SLC?
  • What is the appropriate way to handle any potential conflicts of interest that the SLC may face?

Declassification –the inclusion of provisions that deal with when the loan should no longer be declassified as a social loan.

​The role of an external reviewer

The Joint Associations encourage the use of an external auditor or reviewer for the social loans process. An external reviewer can assist with a range of issues and help to ensure the loan and the borrower’s best align to the SLPs e.g. determining the processes of project evaluation, what standards to benchmark against and how to position this information in context with the borrower’s strategy. Additionally, they can review information reported on by the borrower and/or lenders.

There are a range of different types of external reviews, including:

  • second party opinion – a borrower obtains an independent opinion from an institution with social expertise;
  • verification – a borrower can obtain independent verification against a designated set of use of proceeds criteria and impact metrics; and
  • certification – a borrower can have its social loan framework or the use of proceeds certified against by a recognised external social standard or label.

Where to from here?

There are moves towards mandatory disclosure regimes relating to sustainability in the UK and European markets. For example, the UK plans to make climate-related disclosures mandatory by 2025 for corporates, banks, asset managers and pension schemes. Additionally, in the EU, asset managers and other financial market participants will need to disclose sustainability data under the Sustainable Finance Disclosure Regulation. 

The SLPs provide some colour as to the expectations related to social loans and while the Joint Associations have made a conscious effort to allow for flexibility in the context of a developing market, there are a number of questions relating to the form of certain documentation terms that remain. While the LMA is currently working to produce templates for sustainability-linked loans, it’s unclear if standardised drafting will also be made available for social loans.

Further, as ESG-related initiatives gain heightened importance in corporate decision making, disclosure of social loans will progress from mere signposting of milestone achievements to mainstays of corporate governance more generally.

  1. LMA ‘An Introduction to the Sustainability Coordinator Role’, p3.

Key contacts

Lucy McCullagh photo

Lucy McCullagh

Partner, Head of Finance, Melbourne, Melbourne

Lucy McCullagh
Nicholas Carney photo

Nicholas Carney

Global Co-Head of Infrastructure, Sydney

Nicholas Carney

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