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ESG-linked loans: An opportunity to leverage your CSA

ESG-linked loans: An opportunity to leverage your CSA

20-02-2019 | Article

ESG-linked loans are garnering increasing attention among sustainability-focused lenders, CFOs and corporate treasurers as an innovative financing instrument that enables companies to leverage their sustainability performance to secure favorable financing conditions and greater flexibility.
Singapore-based CapitaLand has used the SAM annual Corporate Sustainability Assessment (CSA) to obtain the first sustainability-linked loan in Asia’s real estate sector. Edoardo Gai, Head of ESG Benchmarking, RobecoSAM, spoke with Andrew Lim, Group Chief Financial Officer, CapitaLand Group, to learn more about the background.

  • Edoardo Gai
    Edoardo
    Gai
    Head of ESG Benchmarking
  • Andrew Lim
    Andrew
    Lim
    Group Chief Financial Officer, CapitaLand Group
  • ESG-linked loans offer sustainability leaders greater financial flexibility and potentially favorable financing conditions
  • Companies can leverage their participation in the SAM Corporate Sustainability Assessment (CSA) to obtain such a loan from a financing partner
  • Singapore-based and one of Asia’s largest real estate companies CapitaLand has used this opportunity to reap financial outcomes and demonstrate its commitment to sustainability

Edoardo Gai: Your company recently took the lead in using CSA results for a S$ 300 million ESG-linked loan, the first and largest sustainability-linked loan in Asia’s real estate sector. What motivated this move?
Andrew Lim: We wanted to use this new opportunity to reap additional financial outcomes from the successful and early integration of sustainability into our business. This loan is explicitly linked to our company’s listing in the Dow Jones Sustainability World Index. As such, we benefit directly from our outstanding sustainability performance as a long-standing member of the DJSI World and the only Asian company among the top 10 real estate firms in the index in 2018. Dovetailing our ESG efforts with our cost of funding allowed us to further demonstrate our commitment to embedding sustainability into our business in the long run and is core to our role as a responsible real estate company. Through this loan, we also hope to spur further positive corporate accountability and encourage others in the business community to adopt good sustainability practices.

What are the key benefits of an ESG-linked loan over a green bond?
A sustainability-linked loan extends beyond the conventional concept of being ‘green’ or attaining a green rating. With this sustainability-linked loan, CapitaLand has the flexibility to use the money obtained for general corporate purposes, whereas the proceeds from green loans or bonds must be used to fund specific projects.

Why did you choose CSA scores over other ESG ratings/rankings?
Leveraging our participation in the independent SAM assessment allows for greater efficiency and alignment with CapitaLand’s ongoing ESG efforts and it means that we don’t have to hire an additional assessor. Through these annual assessments, we obtain an ongoing performance measurement against a robust set of ESG indicators for our listing in the Dow Jones Sustainability Indices.

How did your stakeholders respond to your ESG-linked loan issue?
Feedback from government partners and industry has been positive. Amid growing expectations of companies to adopt more sustainable practices, obtaining this ESG-linked loan is seen as evidence of our sustainability practices, our ability to capitalize on the value of corporate sustainability, and our commitment to continually delivering long-term value for our stakeholders.

Do you have any recommendations for other firms considering an ESG-linked loan?
Securing an ESG-linked loan requires a strong, long-term commitment to sustainability. Companies need to measure up against the robust assessment of their ESG practices to obtain and maintain the loan throughout its tenor. Depending on companies’ ESG efforts, interest rates on the sustainability-linked loan may be reduced further on a tiered basis. It’s also important to seek like-minded partners. Working with committed partners such as DBS and RobecoSAM enabled us to raise industry standards while capturing the tangible benefits of good sustainability practices.

Disclaimer

The SAMs Corporate Sustainability Assessment (CSA) is an independent tool to evaluate a company’s sustainability performance. Participation in the CSA does not in any way guarantee obtaining an ESG-linked loan, any other sort of financing instrument or preferable conditions when seeking for an instrument of financing from a financing partner. RobecoSAM does not issue ESG-linked loans. SAM is a registered trademark of RobecoSAM AG. SAM is used to market services and products of a business unit within RobecoSAM, which specialize in providing ESG data, ESG rating services, and ESG benchmarking. SAM is not to be considered as a separate legal entity.

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