A Sustainability-Linked Financial Framework (SLFF) is a strategic document that outlines how an organization’s financial instruments, such as loans or bonds, are linked to its performance against specific, measurable sustainability targets. Unlike “green bonds” or “green loans” which fund specific environmentally friendly projects, sustainability-linked finance provides incentives for a company to improve its overall sustainability performance across its entire operations.

The core principle is simple: if the company achieves its pre-defined Sustainability Performance Targets (SPTs), it can benefit from more favorable financial terms, such as reduced interest rates. Conversely, if these targets are not met, the financial terms may become less favorable. This mechanism provides a strong financial incentive to drive positive change.