Thursday 24 September 2020

Learn how one of Chile's largest corporates is using its first Sustainability-Linked RCF to align its financing with corporate sustainability commitments.


The Republic of Chile has become a bellwether for sustainable finance in Latin America in recent years, following the government's development of a financial strategy for climate change and plan to achieve carbon neutrality by 2050. 

Chile issued Latin America's first sovereign green bond in June 2019, and followed it with subsequent green bond issuances this year to help fund sustainability and climate programmes.



Chilean corporates are following the government's example with an acceleration of ESG-focused programmes and the use of sustainable finance to embed sustainability into their business strategies. One of the country's most established companies, pulp and paper company Empresas CMPC S.A. (CMPC), launched a $100 million syndicated revolving credit facility (RCF) structured as a sustainability-linked loan (SLL) in August – the latest in green financing for the firm and the most comprehensive SLL in Chile to date.

Roadmap to Sustainability

CMPC has been a leader in advancing sustainability in Chile. In 2019, the company announced its four sustainability goals and took an active role in drafting the Forest Sector SDG Roadmap from the World Business Council for Sustainable Development (WBCSD). The roadmap identifies risks and opportunities for the pulp and paper sector and it establishes a plan to tackle negative impact and contribute to SDGs by 2030.



CMPC's legacy of green issuances have positioned it as a thought leader in sustainable finance in Chile. In 2017, CMPC became the first company in Chile to launch a green bond with a 10-year, $500 million issuance, and the firm followed with green financing in Peru (2018), Chile (2019) and Japan (2019; a syndicated green loan also known as a "Samurai" loan).

The company has taken another step forward with its first SLL RCF, which also features the most comprehensive environmental key performance indicators (KPIs) to date in the country. As with other SLLs, CMPC's facility contains a mechanism through which the interest rate of the loan increases or decreases based on CMPC achieving four environmental sustainability performance targets annually as audited by a third party:

  1. greenhouse gas emissions;
  2. industrial water use;
  3. industrial waste to landfill;
  4. and area for protection, conservation, and restoration.
 
The KPIs align with tackling biodiversity and other environmental challenges, in addition to CMPC's publically stated corporate sustainability commitments. They take into consideration a broad range of key sustainability issues for CMPC, its stakeholders and the pulp and paper industry as a whole, motivating the company to outperform holistically.

"With our stated purpose to accompany our clients on their journey to a more sustainable future by creating sustainable financing solutions, we are delighted to advise CMPC on their comprehensive SLL. This transaction highlights the positive role sustainable finance can play in reinforcing a holistic approach to sustainable forest management so that CMPC can continue to build on their already impressive sustainability and business ambitions," said Florence Pourchet, Head of CIB Latin America at BNP Paribas, who also oversees the bank's Sustainable Finance strategy in the Americas.

Stronger ties in the region
BNP Paribas served as joint lead arranger and sole sustainability coordinator for CMPC's financing and also serves as the administrative agent of the facility. This was the first SLL for the Bank in Latin America, and part of a growing list of sustainable finance transactions that BNP Paribas has supported across the region this year.

In mid-September 2020, BNP Paribas helped Mexico become the first country in the world to issue a sovereign SDGs bond with a €750 million financing used to directly finance eligible SDG-oriented programmes.

Another first occurred in May 2020, as BNP Paribas assisted Corporación Andina de Fomento (CAF), the Development Bank of Latin America, to issue Latin America's first COVID-19 response bond. The €700 million five-year social bond aimed at supporting its member countries' COVID-19-related relief and recovery costs.

BNP Paribas also has strong partnership with Chile, serving as green coordinator as the republic issued the first sovereign green bond in Latin America in 2019, a $1.42 billion financing, and continuing to help on a subsequent issuance in January 2020.




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