Analysis Determinant Factors for Optimization of Distributing & Monitoring Sustainability Linked Loan by Creditor – Case Study Bank X

Abstract

Sustainability-linked loans (SLLs) have emerged as a financial instrument to promote environmentally and socially sustainable practices by linking loan terms to the borrower's achievement of predetermined sustainability targets. However, there is a lack of research examining the challenges banks face in disbursing and monitoring SLLs from a lender's perspective. This study aims to identify the obstacles encountered by Bank X in granting and tracking SLLs by evaluating two corporate borrowers and one commercial borrower (PT A, PT B, and PT C) who received SLL facilities in 2022. Utilizing a qualitative case study approach and guided by the institutional logic framework, the study analyzes internal documents, sustainability reports, and credit agreements, and conducts interviews with key personnel involved in SLL processes at Bank X. The findings reveal several constraints, including unclear SLL portfolio targets, lack of employee training, inadequate monitoring of borrowers' sustainability performance, and delayed interest rate adjustments. The study contributes to a deeper understanding of the practical challenges banks face in implementing SLLs and provides recommendations to improve SLL disbursement and monitoring processes. By addressing these obstacles, banks can enhance their role in promoting sustainable finance and supporting the transition towards a more environmentally and socially responsible economy.