# What does the LMA practice note on SLLs for SMEs say?

Canonical: https://senseible.earth/answers/sustainability-linked-loan-sme-practice-note

Published in September 2026, it shows lenders how to apply the Sustainability-Linked Loan Principles to independent SMEs without weakening any 'shall' rule. Small firms may start with a baseline target, use energy or fuel use as the KPI, report in proportion to their size, and use utility bills or certifications to support verification.

## Who counts as an SME

- Use the SME definition of the market where the borrower operates. Where none exists, the IFC or SBTi definitions can be used.
- Only independent SMEs. A small subsidiary of a large group cannot use this guidance, though backing from a private equity fund does not by itself rule a firm out.
- The note adds no new label. The SLLP still prevail if anything conflicts.

## KPIs a small firm can track

- KPIs can focus on the firm's own operations: energy use, direct emissions, or product and process impacts.
- Where there is no data yet, a clearly defined qualitative KPI can open the loan, as a time-bound step towards a measured one. The note calls this a stackable KPI.
- Getting or keeping a recognised certification can be a KPI on its own if it is relevant, material and objectively verifiable.
- Benchmarks can use proxy or limited peer data, as long as the source and method are stated.

## The note's three-year example

1. Year 1: calculate a CO2e baseline using a recognised standard such as the GHG Protocol.
2. Year 2: set reduction targets covering at least operational emissions.
3. Year 3: deliver those reductions and keep adding emissions categories, such as value chain (Scope 3).

## Targets still have to be ambitious

- Targets must beat business as usual and what regulation already requires. A baseline step cannot replace that.
- Where emissions come mostly from electricity or fuel, cutting kWh or fuel use can be a more practical target than recalculating emissions every time.
- A loan whose KPIs and targets are not agreed at signing is not an SLL and should not be called one. Deferred targets need a reason and a backstop date, ordinarily within 12 months.
- A large customer's supplier programme can shape the targets, provided they stay relevant to the SME's own business.

## Reporting and verification in proportion

- Report at least once a year, with a statement on performance against each target. Lenders may help with the first report.
- External verification is still required where a target can change the loan terms. Audited disclosures, credible certifications or data straight from independent providers, such as utility bills, can support it.
- Where data has already been independently reviewed, lenders should not ask for more assurance unless it adds real credibility.

## What Senseible does here

Senseible turns electricity bills and fuel invoices into a dated Scope 1 and 2 record with rule checks, which a small firm can use for its Year 1 baseline and to report an energy or fuel KPI each year. It does not set targets, price the loan or act as the external verifier.

- [SLL KPI examples](https://senseible.earth/answers/sustainability-linked-loan-kpi-examples)
- [What an SLL verifier checks](https://senseible.earth/answers/sll-kpi-verification-what-verifier-checks)
- [Green loan principles](https://senseible.earth/answers/green-loan-principles-explained)
- [Green loans for MSMEs in India](https://senseible.earth/green-loans-msme-india)

Sources: [Loan Market Association, Practice note on the application of the Sustainability-Linked Loan Principles to SMEs (September 2026)](https://www.lma.eu.com/application/files/7117/9006/5478/LMA_Practice_Note_on_the_application_of_the_SLLP_to_SMEs_-_22_September_2026.pdf), [Loan Market Association, Sustainable Lending page](https://www.lma.eu.com/sustainable-lending)

Last reviewed 2026-11-02.