Wednesday 18 July 2018

AccorHotels Group draws on its position as a sustainable leader to take the lead in Positive Incentive Financing.


There are few businesses as iconic and pervasive as the hospitality business. By providing millions of guest every year with a secure place - a temporary home, a platform for visiting, doing business or getting closer to friends and family - the industry as a whole is central for many, from guests to employees and local communities where hotels serve as enablers for a fluid and seamless flow of paying tourists and business partners.

This is therefore an industry involved in the life of its guests and its employees that is at the heart of the mass consumptions of many polluting products, including chemicals to plastics. It is also an industry that understands the need for sustainability - for preserving the planet's resources and its appeal.

This central role has led some of the most forward thinking companies in the field to take steps toward protecting the environment and focusing on a responsible development.
More generally, the deployment of sustainable initiatives in hotels is a key success factor as it relates to most of the drivers of the industry's growth, from cost efficiency and better guest experience, to tapping into economic incentives from local and governmental authorities and corporate and brand image. In a property management business, focused on long term efficiencies to optimise the yield on large early investments, such efforts drive business models and ultimately profitability.

The sustainable strategy efforts of such actors in the hospitality puts them in pole position to being able to take advantage of the benefits offered by green finance. As the scope of dedicated "green" products grows, forward-thinking companies like AccorHotels are paving the way for a more sustainable future, while lowering long-term risk assessment from investors and lenders and enhancing the cost of financing.

AccorHotels Group's sustained commitment to sustainability

One of the largest hospitality groups in the world, AccorHotels, has consistently taken the lead with its environmentally-driven Planet 21 Acting Here programme, in place since 2016 and built around four main pillars (employees, partners, guests and communities) and two priorities (F&B and buildings). These have been chosen in direct response to its business, environmental and societal challenges backed by quantifiable objectives that all hotels are expected to meet.

The group has clearly highlighted sustainable development and solidarity at the top of its list of priorities.

At the heart of its strategy, AccorHotels's values are expressed through the four commitments and two priorities of Planet 21, with the Group endeavouring to align its corporate agenda with the Agenda 21 signed by 173 heads of state at the 1992 Rio Earth Summit.



AccorHotel's Planet 21 commitments

AccorHotel's Planet 21 commitments


The Planet 21 initiative is the programme put together by AccorHotels in the context of its long-lasting ambition to be a pioneer for sustainability in the hospitality industry. Over the year, the group has consistently innovated and demonstrated a full corporate commitment.


Historical initiatives pioneered by AccorHotels

Historical initiatives pioneered by AccorHotels


The demand for green financial products continues to increase

The market demand for green financial products has significantly increased with many more investors focusing on this new asset class over the last few years. But it was only two years ago that Green Loans and Positive Incentive Loans arrived in force on the market among other green financial products. The latter are tailor made approaches designed to accompany corporates at global or project specific level in their sustainability journey.

Positive Incentive Loans (PILs) are one of the fastest growing products, with a mechanism including discounts or premiums applied to the financing margin depending on the ESG score of the borrower. While Green Loans already represent a complement or an alternative to Green Bonds, Positive Incentive Loans are usually designed to insure liquidity and are therefore structured as Revolving Credit Facilities (RCFs), while being linked to the sustainability performance of the client.
 
"The wholesale green loan market aims to facilitate and support environmentally sustainable economic activity. The Green Loan Principles (GLP) have been developed by an experienced working party, consisting of representatives from leading financial institutions active in the green loan market, with a view to promoting the development and integrity of the green loan product."
Source: Green Loans Principles, Loan Market Association
 
Both Green and Positive Incentive Loan usually cater to CSR leaders across a wide range of industries. As opposed to the capital expenditure (CAPEX) financing backed by a Green Loan, Positive Incentive Loan represents a general corporate purpose facility without any specific use of proceeds and incorporating a pricing mechanism linked to CSR or ESG performance. This performance is defined by a number of performance indicators (sustainable rating or indices, selected KPIs, etc.) usually reviewed by an independent third party.


Green Loan vs Positive Incentive Loan

Green Loans Positive Incentive Loans
  • Introduced in 2013 with strong acceleration from 2017 onward, with 9 transactions totalling c. €1.9bn in volume
  • Mainly senior unsecured term loans with a mix of bilateral and syndicated transactions
  •  Most transactions refer to the Green Loan Principles and use a Second Party Opinion
 
  • Market started to mature in 2017, with 11 transactions totalling €5.3bn in volume
  • A majority of syndicated transactions in the form of RCFs
  • Measurement of ESG performance: eight transactions based on an ESG agency's external rating; three transactions based on tailor-made KPIs reflecting the borrower's sustainability strategy
  • 2018 likely to demonstrate strong appetite for this kind of products, with 2017 full year volumes already surpassed to date


AccorHotels' Positive Incentive Loan facility

AccorHotels intends to make sustainability a core component of its long term financing strategy and aims at enshrining its corporate commitments about sustainability into its corporate practices. Perfectly aligned with that ambition, AccorHotels's most recent transaction is a 5-year, €1.2bn multi-currency senior unsecured revolving credit facility that will be used for general corporate purpose.

In line with AccorHotels' firm commitment to improve the group hotels' performance notably through ambitious sustainability initiatives, the terms and conditions of this recent transaction include (i) a correlation between AccorHotels' financing cost and its overall ESG performance; (ii) the introduction of an additional margin adjustment parameter linked to AccorHotels' ESG score.

Finally, the external ESG score required by the financing is provided by Sustainalytics while various provisions are included in the documentation to ensure adequate implementation and maintenance of the positive-incentive mechanism.


Key feature of AccorHotels' PIL facility

Borrower Accor SA
Product A multi-currency senior unsecured revolving credit facility
Date of Announcement 2 June 2018
Notional €1,200m
Maturity 5 years with two potential 1 year extensions
Interest Reference currency index + credit-based margin + premium/discount based on ESG rating
Counterparties Relationship banks, led by BNP Paribas
Documentation Agent and Sustainable Coordinator BNP Paribas
Positive Incentive Discount or premium on margin indexed on average of ESG scores. One another condition includes introduction of an additional margin adjustment parameter linked to Accor's ASG score
Credit Rating Agencies S&P and Fitch
ESG Rating Agencies  Sustainalytics

Conclusion

Driven by a firm strategic commitment to long-term sustainability and the development of a deeper market for ESG products, AccorHotels is among the corporate vanguard in driving sustainable growth. This landmark transaction is another step for forward-thinking corporates like AccorHotels that are exploring new financing options that not only provide funding benefits, but also drive their long-term commitment to sustainability.



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