Business sustainability push is driving Big Four funding innovations

The shift by Australian businesses to build sustainability into their long term business models is also driving innovation in the financial services sector to help fund major new initiatives.

Digital Nation reviewed financing announcements by the Big Four banks to identify recent examples of sustainability based funding.

Commonwealth Bank — National Australian Built Environment Rating System

Commonwealth Bank has launched a property sustainability upgrade loan which it says is an effort to reduce the environmental impact of commercial properties while reducing operating costs.

CBA worked with the National Australian Built Environment Rating System (NABERS) to develop the loan eligibility criteria.

The loan will enable eligible businesses to increase their commercial property investment loan by up to 20 per cent and reduce emissions by at least 30, meeting or exceeding average market performance.

With buildings accounting for 50 per cent of electricity use in Australia and almost a quarter of emissions, CBA executive general manager, business lending, Clare Morgan spoke on the issue.

“Investing in sustainability upgrades also makes commercial sense in that it can boost the value of properties while reducing operational costs, making the property more attractive to long-term renters and potential buyers,” said Morgan.

“With over 60 per cent of commercial office buildings currently having a NABERS energy rating below 5 stars this loan has great potential for buildings to make important energy efficiency upgrades,” Morgan said.

Commonwealth Bank — NSW Land Registry Services

The NSW Land Registry Services (LRS) and CommBank have signed the first sustainability-linked loan in Australia to include the development of a Reconciliation Action Plan as a sustainability performance target.

Included in the five-year, $300 million loan is a path for NSW LRC to reduce emissions, increase employee diversity at senior levels and advance Indigenous engagement.

The deal is part of a broader $1.9 billion refinancing for NSW LRS.

CBA’s role in the deal was to aid the development of a sustainability framework as well as to act as lead arranger, lender and sustainability coordinator.

“We work closely with our customers to help them translate the unique ESG attributes of their businesses into ambitious targets that advance Australia’s transition to a more sustainable future,” said Andrew Hinchliff, CBA’s Group Executive for Institutional Banking and Markets

“NSW Land Registry Services are to be commended for their commitment to reconciliation, employee diversity and emissions reduction, and we’re very proud to be able to play a part in helping them pursue these ambitions.”

Commonwealth Bank — Stockyard Group

Queensland beef producer Stockyard Group has entered into the Australian agriculture industry’s first sustainability linked loan with Commonwealth Bank.

The loan spans three years and sets parametres for sustainability outcomes such as emissions reduction, animal welfare, and people wellbeing.

Stockyard Group has previously said that they have incorporated the Australian Beef Sustainability Framework and the Carbon Neutral 2030 strategy into their practices.

Commonwealth Bank’s Group Executive for business banking, Mike Vacy-Lyle, said the transaction demonstrates the bank’s ability to develop innovative finance solutions to support the sustainability of the industry through improved ESG outcomes.

“We know many farmers across the country are already adopting best practice sustainability and environmental stewardship, and we want to partner with agribusinesses to help them innovate and accelerate transition plans,” Mr Vacy-Lyle said.

ANZ

ANZ has launched a sustainability-linked derivative product aiming to support customers in their sustainability objectives.

The product will be launched in Australia, Hong Kong, Japan, and Singapore with a pricing component tied to the sustainability targets of the underlying bond or loan

Included within the product is swaps, forwards, cross-currency swaps, interest rate and foreign exchange options executed alongside sustainability-linked bonds or sustainability-linked loans.

ANZ closed Australia’s first sustainability linked loan in 2018 as well as the first sustainability linked bond in the Australian dollar bond market earlier in June.

“ANZ has a $50 billion commitment to fund and facilitate sustainable solutions for customers by 2025, including initiatives to help improve environmental sustainability, increase access to affordable housing and promote financial wellbeing,” a spokesperson said.

NAB — Project Carbon

NAB has partnered with global banks to announce Project Carbon, a voluntary carbon marketplace pilot.

The project comes as corporations worldwide are using carbon offsets as a tool to implement their climate action strategies.

Through the creation of the project, the partnership aims to provide a pathway for clients as they strive to achieve a net-zero goal.

Features of the project include supporting price discovery, promoting investment, traceability and linkage to the source of the credit and allowing owners of credits to demonstrate possession to the market.

“ Project Carbon is a terrific example of how technologies such as blockchain can address existing barriers and make carbon offsets more accessible for our customers — as part of their broader plans to reduce overall emissions and achieve their own targets.” Ross McEwan, Group CEO, National Australia Bank.

Westpac — G8 Education

Westpac has announced the structuring of a $350 million sustainability-linked loan facility for G8 Education.

The key performance indicators in the loan are focused on achieving quantifiable social outcomes, closer to G8’s business.

Two of the Sustainability Performance Targets (“SPTs”) are linked to G8's quality of education and care as well as the safety of G8 team members.

Westpac’s Head of Sustainable Finance, Michael Chen said, “Westpac is committed to helping customers move towards more sustainable business models, by funding assets and outcomes to build a better future for all.”

“We have welcomed the opportunity to partner with G8 on this sustainability linked loan, which helps to support G8 in meeting its strategic objective of providing quality early education and care to children as well as ensuring the utmost safety of its team members.”

These funding models highlight a trend towards linking sustainability and environmental considerations into loans and projects by Australia’s big four banks.

The trend is set to continue, said Westpac’s Head of Sustainable Finance, Chen, “With pandemic-related liquidity concerns becoming more settled, companies are increasingly turning their focus to ESG and sustainability and we expect to see higher volumes of SLLs raised in 2021.”