When agricultural giant Louis Dreyfus recently announced the renewal of its US $750 million revolving credit facility (RCF), it also revealed it was including a sustainability-linked pricing mechanism for the first time. Dreyfus, referred to as the "D" of the ABCD group of big agricultural commodity merchants, is a leading merchant and processor of agricultural goods globally. The interest rate of its new sustainability-linked loan is connected to the firm's performance against four sustainability performance targets related to CO2 emissions, electricity consumption, water usage and solid waste sent to landfill. Meeting these targets each year will result in a reduction in the interest rate on the loan, with performance audited by a third party to ensure transparency. BNP Paribas served as sustainability coordinator, administrative agent and joint lead arranger.
Large international companies are quickly learning the benefits of connecting their sustainability performance to their financing, with Dreyfus and NRG each recently announcing debut sustainability-linked loans (SLL) in the US, both structured by BNP Paribas
Federico Cerisoli, Dreyfus Group Chief Financial Officer, said: "As a company, we are committed to fair and sustainable value creation, and we are linking that commitment to our financing. It is also positive that the banking community is increasingly rising to the challenge, through novel financing options." Cerisoli added that the firm plans to use similar sustainability targets as similar RCFs come up for renewal in Asia and EMEA.
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The volume of ESG-linked loans in 2019 has already surpassed the $40 billion+ issued worldwide in 2018.
The innovative approach of SLLs as financing instruments has attracted increasing attention from corporate treasurers and CFOs at leading companies with a focus on sustainability.
One of those firms is NRG Energy, a US power utility leader that is no stranger to sustainability initiatives, with a comprehensive framework that targets a 50% reduction in carbon emissions by 2030. While SLLs are more commonplace with European utilities, NRG's $2.6 billion SLL is only the third such transaction for a US utility to date.
" This type of financing will likely become the new normal in the industry. "In line with NRG's strategic approach to sustainability, the loan's interest rate will be reduced if NRG meets key performance indicators including greenhouse gas emissions and revenue carbon intensity. As with Dreyfus, the KPIs for NRG's loan will be audited by a third party. BNP Paribas acted as sustainability structuring agent for the transaction.
Pierre Veyres, Head of Global Banking Americas and Deputy CEO of CIB Americas
"We are seeing signs of rapid adoption of sustainability-linked loans worldwide, including in the US, which is an evolving market for green and sustainability lending," said Pierre Veyres, Head of Global Banking Americas and Deputy CEO of CIB Americas. "This type of financing will likely become the new normal in the industry."
As global demand for sustainable finance continues to surge, SLLs are expected to make up an increasing portion of the market – highlighting the idea that positive impact financing is good business.