Downer has closed its debut A$1.4 billion Sustainability Linked Loan (SLL), the largest in Australia in 2020, with BNP Paribas acting as Joint Bookrunner and Sustainability Co-ordinator. The SLL is likely to contribute to a re-energisation of the country's SLL market, as renewed attention on Environment, Social and Corporate Governance (ESG) brings sustainable financing to the fore.
Downer's debut A$1.4 billion Sustainability Linked Loan will likely contribute to a reopening of the country's SLL market.
Downer is a leading provider of integrated services in Australia and New Zealand. Downer operates in sectors connected to investment driven by population growth and urbanisation, including roads, light rail, power, water, education and telecommunications. These operations contribute to positive environmental and social benefits, including lower carbon activities.
Downer as a company has an ongoing commitment to a market leading sustainability strategy, confirms Jason Douglas, Managing Director, Corporate Coverage at BNP Paribas in Sydney.
In October 2020, Downer successfully completed the 100% acquisition of Spotless, one of Australia's leading providers of facilities services. One of the benefits of the acquisition was the ability to refinance Spotless' debt by consolidating debt platforms across the Group. Downer successfully executed the refinancing with its debut A$1.4 billion Sustainability Linked Loan.
BNP Paribas' strong relationship with Downer, and in-depth understanding of their strategy and financing objectives, meant that the team was able to deliver a tailored Sustainability Linked Loan solution. "It was clear that an SLL would be a better fit than a green loan or bond because it could be tied to the company's overall sustainability performance rather than individual projects," said Jason. The SLL further embeds Downer's sustainability strategy within the broader business and will help achieve ESG targets.
The sustainability feature of the facility is centred around four KPI metrics relating to Downer's greenhouse gas emissions reduction pathway and social sustainability. They include validation of the greenhouse gas emissions targets from Science Based Targets Initiative, social sustainability features on cultural awareness and mental health, and wellbeing training of Downer employees. Under the terms of this SLL, the margin on the loan will vary depending on Downer's ability to meet the pre-set environmental and social targets. Meeting these KPIs will lead to a reduction in borrowing costs under the facility, while missing on the targets would lead to a margin premium.
"We put an important emphasis on targets relating to the reduction of greenhouse gas emissions through the two environmental KPIs, which anchors the sustainability feature of the facility," explained Noemie Peiffer, COO of Investment Banking APAC at BNP Paribas. "These KPIs cover Scope 1,2 and 3 emissions and reflect Downer's ambitious decarbonisation pathway."
The third and fourth KPIs are social in scope, covering health, safety and wellbeing, as well as diversity and inclusion. "These are truly complementary to the environmental KPIs and fully in line with Downer's materiality issues and position as one of the largest employers in Australia and New Zealand. The combination of environmental and social targets in the mechanism of the loan is a testament to Downer's comprehensive sustainability strategy," said Noemie.
Progress against the goals is assessed annually and validated by an external reviewer, such as an independent accounting firm.
"The broad benefits of this format are that it links Downer's environmental and social performance to the cost of its debt," explained Jason. "Sustainability performance is embedded in the organisation, so that the whole company becomes accountable; it's up to the individual businesses to deliver on the KPIs, which brings them together."The loan was syndicated to the bank market, where it attracted strong interest and was oversubscribed. A range of institutions participated, including both international and domestic banks.
As Joint Sustainability Co-ordinator, BNP Paribas has demonstrated that its sustainability advisory capabilities, combined with its global presence in sustainable finance, can help clients achieve meaningful progress in addressing their ESG ambitions while ensuring their balance sheet performance is enhanced.