The International Swaps and Derivatives Association (ISDA) has launched a clause library for sustainability-linked derivatives (SLDs). In a press release, the organisation revealed that the library was designed to “provide standardised drafting options for market participants to use when negotiating SLD transactions with counterparties”.
ISDA pointed out that although the SLD market is “still in its infancy and highly bespoke”, a survey it conducted in 2022 “showed that there is a demand for standardised terms and clauses in specific areas to support the development of this product”.
The ISDA SLD clause library thus “provides standard-form drafting options in several key areas, including provisions stipulating what evidence of sustainability performance must be delivered and when, mechanisms to adjust cashflows depending on whether relevant ESG targets have been met, and options available to counterparties following disruption and review events”.
ISDA CEO Scott O’Malia expressed in a statement the expectation that the clause library would bring greater standardization to the market, resulting in more efficiency in the negotiation process and reduced risks.