CEE finance insights: Driving the green transition in the Western Balkans through Sustainability-linked loans

In a new series of articles, we share finance insights from Central and Eastern Europe, examining the legal and commercial developments shaping finance across Central and Eastern Europe, the Western Balkans, and Central Asia.

In part 1, we turn our attention to the Western Balkans to examine how:

• Sustainability-Linked Loans (SLLs) are beginning to play a more significant role in financing businesses as they transition towards more sustainable operations
• International sustainability finance structures are being adapted across markets; and
• Legal issues may arise when established Loan Market Association (LMA) standards are applied in the transaction.

What is a Sustainability-Linked Loan (SLL)?

Unlike traditional green loans where funds must be applied to a specific green project, SLLs reward borrowers for achieving agreed sustainability objectives by linking the cost of borrowing to measurable environmental, social, or governance performance.

In the Western Balkans, these products are becoming increasingly relevant for commercial reasons as much as environmental ones.

Sustainability initiatives in the Western Balkans

Businesses across the region are becoming more closely integrated with European supply chains and, as a result, are increasingly affected by EU sustainability initiatives, such as the Carbon Border Adjustment Mechanism[1]. Demonstrating credible progress on decarbonisation and wider ESG objectives is becoming an important commercial consideration, not simply a corporate aspiration.

Development finance institutions have played a leading role in supporting this transition. The European Bank for Reconstruction and Development’s sustainability-linked financing for MK Group (a leading company in the region with operations in food and agribusiness, tourism, real estate, and renewable energy industries) is a good example of how pricing incentives can be linked to measurable reductions in greenhouse gas emissions [2].

At the same time, initiatives such as the Western Balkans Green Outcomes-Linked Debt Financing Framework (WB GOLD) are helping local financial institutions provide sustainability-linked funding to SMEs across the region[3].

Legal framework for sustainability-linked finance initiatives

The legal frameworks required for these initiatives extends well beyond simply inserting sustainability provisions into a facility agreement.

Applying the Loan Market Association’s Sustainability-Linked Loan Principles within developing legal systems requires careful thought. Sustainability Performance Targets (SPTs) need to be sufficiently ambitious to satisfy lenders and investors, while remaining realistic and measurable for borrowers. Margin adjustment provisions, reporting obligations and verification mechanisms all need to work together in a way which is both legally robust and commercially practical.

Verification

Independent ESG assurance remains relatively limited across much of the region and relies solely on international verification providers which can significantly increase transaction costs, particularly for mid-market borrowers. The parties will seek to agree pragmatic targets and indicators which preserve the integrity of the sustainability framework without creating unnecessary barriers to finance.

This market is still at an early stage, but the direction of travel is clear. As sustainability considerations become increasingly embedded within lending decisions, we expect Sustainability-Linked Loans to become a far more common feature of financing across the Western Balkans.

For legal professionals, the challenge is not simply documenting these transactions but extends to helping clients develop financing structures which satisfy international standards while reflecting the commercial realities of the region. This is where legal advisers can add real value.

In the second instalment of our finance insights series, we will examine the legal and commercial developments currently shaping the market across Central Asia.

How Hamlins can help

Our Real Estate Finance team acts for both borrowers and lenders. We aim to ensure all transactions are swift, expertly facilitated and remain on track to a satisfactory conclusion. Please get in touch to find out how we can help.

[1] a trade policy tool used to apply a carbon price to specific imported goods. Key features include preventing carbon leakage, equalizing carbon costs between domestic and foreign products, and targeting carbon-intensive sectors.

[2] EBRD issued a €40 million sustainability-linked loan to MK Group in October 2025. This financing supports capital expenditures for Serbia's first industrial-scale bioethanol facility, winery expansion, greenhouse gas reduction targets, and digital infrastructure upgrades.

[3] The Western Balkans Green Outcomes-Linked Debt Financing Framework (WB GOLD) is a regional €400 million green finance initiative by the EBRD. It provides outcome-based financial incentives to local partner financial institutions to expand and institutionalize green lending for small and medium-sized enterprises (SMEs) across Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia.