Sustainability linked loans aim to facilitate and support environmentally and socially sustainable economic activity and growth. The Sustainability Linked Loan Principles (SLLP) have been developed by an experienced working party, consisting of representatives from leading financial institutions active in the global syndicated loan markets (https://www.lsta.org/content/sustainability-linked-loan-principles-sllp/).
Sustainability linked loans are any types of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) which incentivize the borrower’s achievement of ambitious, predetermined sustainability performance objectives. The borrower’s sustainability performance is measured using predefined sustainability performance targets (SPTs), as measured by predefined key performance indicators (KPIs), which may comprise or include external ratings and/or equivalent metrics, and which measure improvements in the borrower’s sustainability profile.
Accordingly, real estate developers who are keen to get their capital construction projects financed by Sustainability Linked Loan Principles (SLLP) need to implement the needed actions to achieve the required performance targets for the environmental, social and governance (ESG) categories of sustainable development which would need to be agreed with the financial institutions providing the SLLP funding. Those performance targets will be associated with the agreed KPI for the environmental category which could include KPIs for Energy Efficiency, Greenhouse Gas Emissions, Waste Disposal, Renewable Energy, Water Consumption, Sustainable Sourcing and others while for the social category the KPIs could include Human rights and Community Relations, Employee Health and Safety, Employee Engagement, Diversity and Inclusion, Employee Training and others.
For each one of those agreed on KPIs, there will be an audit to verify what was achieved against what was planned at the end of each audit period. This will become the basis for scoring each KPI on a scale of 5 were 5 is On Target, 3 Slightly Behind Target while 1 is Behind Target. In addition, there will be weight for each KPI to bring the total weight of all KPIs in the audit assessment to 100%. This will enable providing a weighted Sustainable Development Performance Indicator (SDPI) which will range from 5 for On Target, 3 for Slightly Behind Target while 1 is for Behind Target. The SPDI will become the basis for determining the extent of compliance of each real estate development project with the rules and conditions set for the Sustainability Linked Loan.
Using a Project Management Information System (PMIS) like PMWeb which is used to manage the business processes needed for the delivery of capital construction projects, a business process will be also added to manage the monitoring, evaluating the reporting the key performance indicators (KPIs) for the Sustainability Linked Loans. PMWeb custom form builder will be used to create the template for which it will include the list of agreed KPIs that will be audited at the end of each period. For each KPI, there will be a table for the target value, unit of measure, achieved KPI value, the weight of the KPI, score value and remarks.
All supportive documents used for assessing the KPIs need to be attached to the assessment template. It is also highly recommended to add comments to each attached document to provide better understanding of what was the document for. The attachment tab also allows the user to link other records for business processes implemented in PMWeb as well as associate URL hyperlinks with websites or documents that are not stored in PMWeb document management repository.
All those supportive documents need also to be uploaded into PMWeb document management repository so they can be stored and used. Those documents could be uploaded into folders or subfolders so they are better organized and secured. PMWeb allows setting access rights to each folder to identify the users who have access rights to view documents stored in a folder. In addition, PMWeb allows setting notifications for individuals to receive emails when new documents are uploaded or existing documents were downloaded or deleted.
To enforce accountability for each audit assessment, PMWeb workflow module will be used to create a workflow to formalize the review and approval tasks of those business processes. The workflow will map the sequence of the review and approval tasks along with the role or user assigned to the task, duration allotted for the tasks, rules for returning or resubmitting a document and available for each task. The workflow will capture the details of all those individuals who were involved in the ESG audit.
When an Audit Assessment transaction is initiated, the workflow tab will capture the planned review and approve workflow tasks for each audit assessment transaction as well as the actual history of those review and approval tasks. PMWeb will capture the actual action data and time, done by who, action taken, comments made and whether team input was requested.
The data extracted from the Sustainability Linked Loan business process will become the basis for monitoring, evaluating and reporting the environmental, social and governance key performance indicators for each project. Each project will have one of the three color indicators, “Green” for On Target, “Orange” for Slightly Behind Target while “Red” is for projects that are Behind Target. The report can be configured to select projects by the weighted ESG score or even project type if the real estate developer as different project types like retail, commercial or residential.
About the Author
Bassam Samman, PMP, PSP, EVP, GPM is a Senior Project Management Consultant with 40-year service record providing project management, project controls services and project management information system to over than 200 projects with a total value in excess of US $100 Billion. Those projects included Commercial, Residential, Education and Healthcare Buildings and Infrastructure, Entertainment, Hospitality and shopping malls, Oil and Gas Plants and Refineries, Telecommunication and Information Technology projects. He is thoroughly experienced in complete project management including project management control systems, computerized project control software, claims analysis/prevention, risk analysis/management (contingency planning), design, supervision, training and business development.
Bassam is a frequent speaker in topics relating to Project Management, Strategic Project Management and Project Management Personal Skills. Over the past 40 years he has lectured at more than 350 events and courses at different locations in the Middle East, North Africa, Europe and South America. He has written more than 500 articles on project management and project management information systems that were featured in international and regional magazines and newspapers. He is a co-founder of the Project Management Institute- Arabian Gulf Chapter (PMI-AGC) and has served on its board of directors for more than 6 years. He is a certified Project Management Professional (PMP) from the Project Management Institute (PMI), a certified Planning and Scheduling Professional (PSP) and Earned Value Professional (EVP) from the Association for the Advancement of Cost Engineering (AACE) and Green Project Management (GPM).
Bassam holds a Masters in Engineering Administration (Construction Management) with Faculty Commendation, George Washington University, Washington, D.C., USA, Bachelor in Civil Engineering – Kuwait University, Kuwait and has attended many executive management programs at Harvard Business School, Boston, USA and London Business School, London, UK.