Macquarie University, meanwhile, plumped for full disclosure of the KPIs in its inaugural sustainability-linked loan (SLL), acknowledging that such an approach introduces reputational risk should it miss its targets but arguing that accountability is more important. The loan structure also takes steps toward tackling sustainability factors that are currently harder to measure.

The Macquarie University SLL is a A$450 million (US$291.2 million) refinancing facility comprising A$100 million three-year and A$350 million five-year tranches. Commonwealth Bank of Australia (CBA), ANZ and Bank of China acted as sustainability coordinators and were joined by HSBC in the full lender group.

The lender has elected to make the SLL KPIs, which encompass social and environmental goals, publicly available (see table 1). The terms cover scope-one, scope-two and scope-three emissions, biodiversity, indigenous cultural safety, UN Sustainable Development Goals (SDG) awareness training for students and staff, gender equality, and development opportunities in STEM for underrepresented children.

The decision to fully disclose the loan’s KPIs and sustainability performance targets is far from standard in the SLL space, where many borrowers have elected not to confront the reputational risk that could come from missing ambitious targets. Globally, questions have been raised about the level of ambition in sustainability-linked facilities – a situation exacerbated by limited disclosure that does not allow market participants that are not party to transactions to compare and judge deal structures.

Worldwide skepticism surrounding the sustainability-linked format, due to possibilities for greenwashing, has thus prompted market users to demand greater transparency and disclosure on KPIs and impact reporting.

Madeleine Wilson, Sydney-based associate director, sustainable finance and ESG at CBA, tells KangaNews: “Markets have been wanting more disclosure on the specifics of SLL targets for a while Macquarie University’s framework will delve into significantly more detail than is usually seen, providing stakeholders with greater visibility of what the university is trying to achieve and portraying the gravitas of the ambition of these targets.”

Macquarie University believes the SLL is a motivating instrument for its sustainability plans – and this outweighs any associated risk from public disclosure of its targets. “The reputational risk of not achieving our ambitious plan is absolutely there,” explains Ben Gray, Sydney-based deputy group chief financial officer at Macquarie University. “But we view our sustainability framework as a way to hold ourselves accountable to our community and stakeholders.”

He explains that having an SLL that aligns with the university’s goals creates an ongoing incentive to maintain sustainability reporting discipline in the budget process and ensures that it has the funding available to focus on, and clearly commit to, critical sustainability tasks.

Deal sources, meanwhile, insist the issuer’s willingness to disclose SLL details do not reflect a lack of ambition – as might be the case if the facility deployed KPIs that were easy to achieve under business as usual. Charles Davis, Sydney-based managing director, sustainable finance and ESG at CBA, says Macquarie’s strong stance on transparency about its SPTs demonstrates its commitment to continued ambition. “Moreover, the number of KPIs in the Macquarie University SLL is rare – this indicates the breadth of initiatives the borrower is undertaking and the level of ambition within them,” he adds.

DNV provided a second-party opinion on the deal, confirming that it aligns with the Asia-Pacific Loan Market Association’s Sustainability Linked Loan Principles (SLLPs).

Macquarie University itself has brought two sustainability bonds to market, in 2018 and 2019, immediately after publishing its Sustainability Financing Framework. Using a format that incorporates social as well as environmental assets or – in the case of the SLL – targets, made sense for a university that, Gray explains, sits on 126 hectares of Wallumattagal land. “Sustainability is a very deeply ingrained part of our sense of being and who we are,” he says.

1. Measured on tax year annually (i.e. July through June) per National Greenhouse and Energy Reporting.
2. Incremental to preliminary ARUP Scope 3 Mapping (of 2021 emissions) undertaken in December 2022.
3. As measured by GIS software (refer page 62).
4. The WGEA 40:40 Vision aims to achieve a minimum of 40% women and 40% men in leadership positions.

Source: Macquarie University 25 July 2023

Existing sustainability commitments also helped line up Macquarie University for sustainability-linked borrowing. Having baseline data available to measure outcomes against level of ambition was crucial to alignment with the SLLPs, Davis explains.

“The sustainability-linked format also aligns with the underlying social ethos of the university sector’s purpose, as institutions with an intrinsic focus on supporting education for communities and meaningful research,” Wilson adds.

However, deal sources say SLL borrowing may not imply future sustainability-linked bond issuance by Macquarie University or its peers. This security type has struggled for momentum after a promising start at the turn of the current decade. Davis says the adjustments needed to move from loan to bond in a format investors are satisfied with are complicated.

He explains: “Some of the feedback we have received from investors is that two-way margin movements are not particularly palatable at this point in time, providing challenges to the product’s intent to incentivise issuers.”

Gray says the issuer is satisfied with its mix of bank and capital market debt. Innovation may provide an incentive, as Gray adds that the university “aspires to hold its position as a market leader” by adopting new sustainable financing strategies.

The La Trobe University seven-year green bond priced on 31 July at 107 basis points over swap and final volume of A$175 million. National Australia Bank (NAB) was sustainability coordinator and lead manager.

After a two-day roadshow, deal sources say investors were forthcoming with feedback on volume and tenor, and this provided the group confidence to launch. Due to the feedback received, La Trobe University was able to increase volume from A$125-150 million and tighten pricing by 3-8 basis points from initial guidance. The final orderbook was 1.6 times oversubscribed and deal sources believe the final pricing level was appropriate for the scale of demand.

“It was already quite competitive based on where comparable university bonds were trading,” says James Waddell, Sydney-based director, sustainable finance at NAB. Transactions from Monash University, University of Melbourne and University of Tasmania were the closest comps, Waddell adds, along with the more recent corporate issuance by NBN Co from March 2023.

The La Trobe University deal had 13 investors in total with a heavy bias to domestic real money. On 4 August – mid-way between pricing and settlement – the issuer disclosed that a revision to S&P Global Ratings’ methodology for global not-for-profit education providers could result in a change to La Trobe University’s AA-credit rating or its outlook assigned to the issuer. Later the same day, S&P finalised the review by affirming the rating but left La Trobe University on negative outlook. NAB confirms that the transaction structure, size and pricing remained unchanged.

Although the transaction is in use-of-proceeds format – and thus refers to specific underlying assets – the deal team was well aware of the growing trend for investors to have expectations of green, social and sustainable bond issuers beyond their asset pools.

“The overall credit, as well as the sustainable aspects of the deal, was front of mind for the domestic fund managers we engaged with,” reveals Violetta Astor, senior associate, debt capital markets origination at NAB in Sydney. “It is not only assets that investors are focusing on but long-term trends and the university’s strategy for the future.”

Mark Smith, Melbourne-based chief operating officer at La Trobe University, adds: “There was a lot of questioning about what we are doing from a green perspective, our history and our outlook. We spent a lot of time discussing our ability to demonstrate our commitment and to deliver in this space.”

This is also a two-way dialogue. Smith reveals that at least a couple of investors also wanted to champion their own ESG credentials during the deal marketing process.