14 September 2020
This year Commonwealth Bank of Australia (CBA) secured a three-year AUD400 million ($290 million) bilateral sustainability-linked debt investment with Wesfamers, an Australian conglomerate spanning retail, chemicals and more.
It is the first sustainability-linked loan tied to environmental and social inclusion targets including "ambitious" indigenous employment targets, according to CBA.
Under this investment Wesfarmers aims to create 1,100 jobs for indigenous Australians, increasing its employee representation in this category from 1.7% to 3%. If the target is achieved, in line with six pre-agreed monthly "milestones", Wesfamers attains a lower margin on the loan facility. However, if the percentage of Wesfarmers' indigenous employees decreases from that 1.7% baseline then a margin premium is applied to the facility. The size of this potential premium was not disclosed.
In addition, Wesfarmers is incentivised to increase its environmental performance, by applying a two-way pricing against a pre-agreed baseline, to the carbon emissions intensity of the company's ammonium nitrate production. This will be checked every six months and is expected to increase capital expenditure in Wesfarmers' production to improve carbon efficiency.
CBA's sustainability linked-loan to Australia's Wesfarmers broke new ground - and scooped Environmental Finance's Social inclusion/community development IMPACT deal of the year. Mark Nicholls reports
CBA said it believes that the sustainable finance market is greatly steered towards green and environmentally focused transactions and that impact or social investing transactions are comparatively smaller and fewer in number. The bank argues this transaction is both a frontrunner for the expected mainstreaming of social impact metrics to support corporate debt structures and a great example of the increasing elevation of the social in environmental, social and governance investing among boards and senior management.
"Diversity of employment and opportunities for Indigenous Australians is front of mind for many Australian corporates, and we know this has been a priority for Wesfarmers for some time," says Mark Peacock, director of sustainable finance at CBA.
"On the borrower side, lower funding costs from delivering against environmental and social metrics are very attractive to CFOs and treasurers. But equally it plays into what is increasingly a strategic priority for corporates. Companies, no matter the sector, are thinking about how they transition their business models and this sort of product can support and help drive that," adds Peacock.