A sustainability-linked loan (SLL) is a facility whose interest margin is adjusted up or down depending on the borrower's achievement of contractually defined environmental, social and governance (ESG) performance targets. Unlike a green loan, the use of proceeds is not tied to a specific green project; it is overall ESG performance that drives the cost.

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Increasingly spreading to the SME market in 2026, this mechanism links the cost of capital directly to the sustainability trajectory, consistent with the demands of the CSRD. It operates through a margin ratchet indexed to verifiable indicators.

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Example: an industrial SME negotiates a CHF 8.0 million loan at SARON + 2.5%, with a +/- 0.15% adjustment based on three targets (emissions reduction, accident rate, share of women in management). Meeting the targets cuts the margin to 2.35%, a saving of CHF 12,000 per year.

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At Hectelion, we assess the impact of ESG-linked financing on the cost of capital and valuation in an environment of growing sustainability requirements.