Record-breaking sustainability-linked loans for Italian utility Enel and global brewing giant AB InBev highlight increased efforts by banks and borrowers to align corporate credit facilities to sustainability targets.
Enel’s record €10bn sustainability-linked revolving credit facility was signed on March 5, less than a month after Anheuser-Busch InBev signed a US$10.1bn sustainability-linked facility. The previous record SLL was held by French biopharmaceutical company Sanofi, which agreed €8bn of facilities in December.
The growth of SLLs over the past few years has spurred corporates to accelerate their sustainability strategies as they compete with peers to maintain their overall ESG profile in the capital markets.
“This will continue to become more mainstream,” a head of syndicate said. “I can’t imagine pitching to a client now without addressing ESG factors in some form.”
With around US$41bn of sustainability-linked loans arranged so far this year in EMEA, according to Refinitiv LPC data, the focus has moved firmly back to sustainability after a brief lull at the height of the Covid-19 crisis as companies battled to secure emergency liquidity.
“We see more and more companies putting sustainability in the core of their business and following the trend of including sustainability-linked features in their RCFs,” said Robert Spruijt, head of sustainable finance for EMEA at ING,.
SLLs incentivise borrower action on sustainability, while allowing companies to demonstrate a positive direction on environmental and social issues.
“SLLs are more about companies showcasing their willingness and ability to transition to sustainability. They want to signal to stakeholders, as well as their banks, that they are ready to make this commitment,” said Robert Vielhaber, a director for sustainable finance advisory at UniCredit.
“With banks increasingly under pressure from regulators over exposures to less sustainable businesses, including an ESG metric makes it that bit easier to lend.”
In fact, companies that fail to embrace sustainability and hold off from making that transition could find it harder to raise debt as banking relationships come under strain.
“Companies that are not demonstrably ESG-positive or carry some sort of ESG tarnish might find it harder to find financing from regular financial institutions who want to demonstrate to their own investors they are pursuing a green agenda,” a second syndicate head said.
Enel’s five-year RCF replaces its €10bn RCF that was agreed in December 2017. Margins on the financing are linked to a key performance indicator based on direct greenhouse gas emissions.
Green hopes
CFOs at corporates within sectors that are seen as being "less green" are among some of the most eager to demonstrate their pursuit of ESG credentials, in a bid to maintain a wide pool of relationship borrowers.
That eagerness is likely to step up as funding from all sources increasingly follows a green agenda, not only backing industries self-evidently ESG positive but avoiding those that fall on the wrong side of the line – unless, that is, they are willing to explore a commitment to alternatives, such as electric cars for auto manufacturers or clean energy sources for fossil fuel companies.
“A lot of it is about showing you are doing the right thing and some of the biggest proponents of green financings are those companies that you imagine would be most at risk. A lot of energy companies are investing in green projects because of a genuine desire on behalf of those companies to explore alternative energy sources but also because there is a risk fossil fuel-related deals will become harder to finance,” the second syndicate head said.
While a commitment to ESG and a move to SLLs are being welcomed by the market, at the moment there is a recognition that the ESG criteria that governs such deals are very much in their infancy.
“At the moment, having an ESG link of itself is enough, but pretty soon people will interrogate the quality of those ratchets and targets and people will start distinguishing between those that are real and measurable and make a difference and those that are green washing,” the second syndicate head said.
Additional reporting by Claire Ruckin
