Empowering hospitality through sustainability-linked loans
As the hospitality and real estate sectors tackle ESG challenges, Sustainability-Linked Loans (SLLs) have emerged as transformative financial tools. Unlike traditional loans, SLLs tie financial terms—such as discounts on interest rates—to the borrower’s ability to meet pre-agreed sustainability performance targets (SPTs). For hotel operators and real estate asset managers, SLLs represent a unique opportunity to align financial strategies with environmental and social goals.
What are sustainability-linked loans?
The built environment is responsible for nearly 40% of global carbon emissions (WBCSD, 2025). Hotels and real estate businesses play a significant role in this, making it a priority to adopt solutions that can mitigate their environmental impact. Sustainability-Linked Loans incentivize businesses to incorporate sustainability across operations, even when funds are not strictly directed toward green projects. Unlike traditional loans, which focus solely on financial metrics, SLLs provide an ideal mechanism by linking loan terms to measurable sustainability performance, offering not just the necessary financial support but also incentives to achieve targets. Loan terms are linked to measurable sustainability performance, offering financial benefits like lower interest rates when targets are met, or penalties for missed goals. These targets can include reducing greenhouse gas emissions, improving energy efficiency, and addressing social KPIs such as diversity and employee well-being.
A Dynamic structure for a dynamic industry
Hotels often require substantial capital to implement sustainability initiatives, for example, retrofitting buildings, adopting renewable energy sources, and obtaining sustainability certifications. The flexibility of SLLs makes them particularly appealing to the hospitality sector, where high operational costs, energy-intensive activities, and the need for constant upgrades create a reliance on financing. Hotels often require substantial capital to implement sustainability initiatives, such as retrofitting buildings, adopting renewable energy, and achieving certifications. This structure aligns financial and environmental goals, helping hotels reduce costs while enhancing their ESG metrics. Additionally, sustainability initiatives can boost customer loyalty by attracting eco-conscious travelers, creating both financial and reputational benefits.
Can you apply for an SLL if you are a hotel operator?
Shortly, yes. Sustainability-Linked Loans (SLLs) are versatile tools for various entities in the hospitality industry, including both operational companies (OpCos) and property companies (PropCos). Collaboration between OpCos and PropCos is often essential for structural investments, though both entities play crucial roles in leveraging SLLs effectively. OpCos can drive day-to-day sustainability initiatives, such as energy-efficient upgrades and waste reduction, while PropCos, as property owners, are better equipped to fund large-scale projects like retrofitting older buildings ("brown assets") or developing new sustainable properties ("green assets").
The 5 non-negotiable implementation steps:
- Choose relevant, material, and measurable sustainability metrics tied to the borrower’s core business strategy.
- Set ambitious, measurable targets for each KPI, ensuring alignment with sustainability goals.
- Loan characteristics and economic terms adjust based on the borrower’s achievement of the target (e.g. a margin discount).
- Annual reporting updates, including verification reports on sustainability performance targets, shared with lenders.
- Independent external verification of performance against sustainability performance targets.
