Westpac NZ brings sustainability-linked loans to the fore

By Allen Jack

Westpac NZ has entered into an intriguing loan with Wellington-based Contact Energy, linking a four-year sustainability plan to the agreed sum of $50mn.

A new kind of loan

A rarity in the New Zealand banking sector, and the first issued by Westpac NZ, the loan features incentive targets aimed at maintaining Contact’s performance of addressing climate change, corporate governance and engaging its stakeholders.

Receiving an attractively discounted interest rate if it meets the targets, or a suitably inflated one if it breaches them, Contact’s agreement with Westpac NZ is a bold and confident statement of its dedication to improvement. In a press release, Joanna Silver, Head of Sustainable Finance at Westpac NZ, considered it a shining example of “businesses working together to drive better environmental and social outcomes”.

Linking its performance to loan repayments could also bring Contact more large-scale benefits. “Contact Energy has taken a holistic and multi-dimensional approach to achieve a range of sustainability outcomes,” said Silver. “Westpac recognises the value of using capital to generate better, longer-term outcomes for their company and for all New Zealanders, and we want to reward them through innovative lending structures.”

Going through changes

Westpac NZ’s loan is emblematic of the rise of ‘green loans’ or environmental finance worldwide. Bloomberg calculated that US investments in sustainable assets had reached $31trn in 2019. 

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According to data from Environment Finance, the global market for sustainability-linked loans (SLLs) grew from $5bn in 2017 to $40bn in 2018 - a stark increase, and one which demonstrates the vigorous enthusiasm and appetite for such activity. Companies across a broad range of sectors are now stepping up to the plate to declare their own targets for an SLL. Information made available from French bank BNP Paribas gives an insight into this diversity: utilities (Thames Water), chemicals (Solvay), and hotels & hospitality (Accor Hotels) are all getting involved.

Contact Energy is glad to now be part of a worldwide movement. Louise Tong, General Manager of Financial Services, said, “We’re pleased to be playing our part in helping develop this innovative bank-lending market. It gives us another way we can help support decarbonisation for our business customers, many of whom will look to banks to support the funding required for decarbonisation.”

For more information on business topics in ANZ, please take a look at the latest edition of Business Chief ANZ.

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