A new sustainability linked loan to ISPT offers lower interest rates for sustainable outcomes but also contains the mechanism to potentially pay higher interest if targets aren’t met.
Real estate investment giant, ISPT has entered into Australia’s largest ever Sustainability Linked Loan (SLL) a $2.8 billion facility that aims to improve sustainable outcomes across its operations.
The SLL lenders include Australia’s big four banks as well as HSBC, which acted as joint sustainability coordinators, along with Canadian bank, Bank of Nova Scotia as an additional lender.
SLLs work by incentivising the borrower, in this case ISPT, to achieve predetermined sustainability performance targets (SPTs), in order to receive interest reductions on the loan. Unlike a Green Loan, SLLs do not need to be linked to a specific project.
“What the SLL product offers is the opportunity to spend the money on general corporate purposes, but the interest rate on the loan is tied to the achievement of the sustainability initiatives,” NAB director, sustainable finance, Alison Chan told The Fifth Estate.
ISPT has agreed to improve the sustainability performance of its core property portfolio across four key metrics: greenhouse gas emissions intensity, water consumption, waste reduction and labour certification.
A company statement said the undertaking, “builds on our unwavering commitment to create better futures for our Investors, customers, communities and teams and the focus areas of our ESG strategy to 2025.”
The company, which largely deals in superannuation investments and holds a real estate portfolio worth $19.3 billion, is already an industry leader in reducing carbon emissions and improving tenant wellbeing.
Specific parameters of the loan are confidential but according to ISPT align with its ESG Strategy and “Flag on the Hill” 2025 targets, which includes 100 per cent renewable electricity consumption, zero organic waste to landfill and a 30 per cent reduction in water usage.
While under the terms of SLLs, lenders stand to see reduced returns on their loans, NAB’s Ms Chan said banks such as hers were increasingly recognising sustainable companies as lower risk.
“NAB sees more sustainable companies as better long term risks, and better long term risks are worth reduced pricing,” Ms Chan said.
“The converse of that is that sustainability deterioration can lead to increased long term risks for lenders which justifies increased pricing. If ISPT do not achieve their sustainability targets there is a possibility they will pay more.”
Assessing whether ISPT has met its targets, will be third party auditor EY which will undertake annual reviews of their performance against the SPTs.