The SLL door opens in Australia

ING Bank (ING) was the global pioneer of sustainability-linked loans (SLLs). In August, the bank hosted a roundtable with KangaNews in Sydney to discuss the product’s emergence and its relevance to Australian corporates. Borrowers say SLLs could gain traction above and beyond what green bonds have been able to deliver.

  • Michael Bradburn Chief Financial Officer AUSGRID
  • David Breen Head of Corporate Affairs ING BANK
  • Herry Cho Director and Head of Sustainable Finance APAC ING BANK
  • Nick Gandolfo Associate Director, Sustainable Finance Solutions SUSTAINALYTICS
  • Josh Golding Manager, Corporate Finance ADELAIDE AIRPORT
  • Charles Ho Managing Director and Head of Wholesale Banking ING BANK
  • Michael Larkin Group Treasurer LENDLEASE
  • Michael Momdjian Group Treasurer SYDNEY AIRPORT
  • David Young Senior Adviser, Qantas Future Planet and Sustainability QANTAS
  • Helen Craig Head of Operations KANGANEWS
  • Samantha Swiss Chief Executive KANGANEWS

Swiss What is the history behind the SLL and what has growth trajectory been like so far?

CHO The SLL product was launched only two-and-a-half years ago. The concept comes from the idea that financiers and banks, like ING, that have strategies aligned to sustainability efforts want to future-proof their clients’ businesses as well as their own balance sheets.

One of the ways we want to do this is to incentivise our clients. It really doesn’t matter what stage of the sustainability journey they are at, because our aim is to help them take ambitious steps forward, to be their partner in this process and incentivise them from the ever-important pricing perspective.

ING was the sole sustainability coordinator for the first-ever SLL transaction, which was a €1 billion (US$1.1 billion) syndicated loan for Royal Phillips completed in April 2017. Pricing was linked to the up- and downside of the independent environmental, social and governance (ESG) ratings assigned by Sustainalytics.

We didn’t expect the market to pick up on the SLL instrument quite so quickly. One of the reasons it has, we think, is because it is so simple in concept even though the mechanics behind its definition are ambitious.

By the end of last year, around US$80 billion of syndicated SLL loans had been issued. In 2019, volume is already surpassing the previous year on a pro-rata basis with about US$45 billion of SLLs priced by the end of H1. We are excited to see the growth and geographic diversity of this product across different regions – especially Asia Pacific.

Swiss What are ING’s early conclusions about the relevance of the product here in Australia?

CHO There is a significant amount of interest. I think this is because it is not only the sustainability parts of the business but also the finance teams that want to be part of the journey. More and more treasury teams view climate change as a considerable financial risk.

The market needs products to help move the dial. The treasurers and chief financial officers that have been enlightened about the sustainability journey are eager to use and support the development of these products.

What has been a bit slower is the know-how part, which is ever evolving around best practice. The concepts themselves are not challenging. With the right partners on the journey, we believe the market will significantly grow in Australia in the next year or two.

Craig Adelaide Airport signed Australia’s first-ever bilateral SLL in December 2018. What was the strategy and process?

GOLDING We started exploring green and sustainability financing options after seeing increasing interest in sustainability from investors in our MTN programme. They were asking if we would consider issuing a green bond.

We quickly worked out that a green bond wasn’t an option for us. We had some qualifying property assets, but our core aviation assets such as the terminal and airfield didn’t have traditional green accreditations. We were therefore building up our asset pool with relatively lower-value items like solar panels.

We then asked our banks about broader sustainability options, which developed into a couple of our banks proposing an ESG-linked loan. We liked the concept and felt it was more closely aligned with Adelaide Airport’s holistic approach to sustainability.

We were keen to do an SLL from the outset as we see this becoming a normal part of accessing funding in the future. We wanted to understand how it might work for us and to demonstrate to others that we were already heading in this direction.

We had also just rolled out a new sustainability policy which is essentially about embedding sustainability within our day-to-day business. We believed it was a good opportunity to demonstrate to the business as a whole how this could be achieved through embedding sustainability within our financing arrangements.

We considered a syndicated option but we could see varying levels of maturity in this space across our banks. Given it was the first Australian SLL, we believed it would be more straightforward to work with one bank to develop the documentation rather than to try to deal with the issues that can be posed by having a broader-based loan syndicate.

“We didn’t expect the market to pick up on the SLL instrument quite so quickly. One of the reasons it has, we think, is because it is so simple in concept even though the mechanics behind its definition are ambitious.”

Craig Sydney Airport priced the first-ever fully syndicated SLL loan in Australia earlier this year. How did this transaction come to be and what gave the company the confidence to become the first mover in this fledgling format?

MOMDJIAN We signed a A$1.4 billion (US$940.2 million) syndicated SLL in May 2019. We kicked off conversations with lenders in late February and formally launched the transaction in late April, with the SLL delivered under an accelerated timetable.

We looked at our debt portfolio with the aim of refinancing our bank-debt facilities well in advance of maturity. We started with a regular bank-debt refinancing process before overlaying the SLL element.

We have been looking at sustainable-financing options for many years. While we have implemented a number of green initiatives, we haven’t been able to identify a critical mass of green investment to fund or refinance by way of a green bond or loan.

The emergence of SLLs as a flexible alternative – relative to use-of-proceeds-based products – and the timing of our bank-debt refinancing brought the stars into alignment.

Craig What was the response from the broader syndicate to the decision to market a general refinancing first and then to tell lenders it would be an SLL?

MOMDJIAN Strategically, we wanted to make sure we achieved the best possible base price before introducing the concept of a sustainability-linked discount.

Many of our lenders were quite excited when we introduced the SLL element and several proactively reached out with details of their banks’ sustainability funding targets. In fact, we were significantly oversubscribed from our existing lender group alone. We saw alignment between introducing the sustainability element and the banks’ own objectives.

Other banks were eager to be brought on the journey so they could learn from our transaction with a view to marketing or actively participating in similar deals by other issuers in the future. This is starting to come to fruition as Queensland Airports priced a two-bank, A$100 million SLL two months after ours.

Craig Have you received follow-on interest from your peers?

MOMDJIAN Yes, from all sorts of places. We have had hour-long conversations with corporates that are interested in issuing in the format. We have also had conversations with bank and nonbank lenders, other investors and even a research student – all keen to understand the product and process.

GOLDING We have received a similar level of interest. We’ve had enquiries from equity and debt investors, banks and other corporates. It is a great outcome that our transaction received this level of focus. Almost the greatest benefit of doing this transaction is the broader influence of the conversations it has triggered. These are conversations we weren’t having before.

“The opportunity the SLL presents is an incentive to change behaviour, which creates the opportunity for different outcomes. This is more likely to get corporate borrowers interested.”


Cho Can you share some detail about the sustainability structuring aspects of the transactions?

MOMDJIAN Our loan creates a direct two-way link between our sustainability performance and funding costs, so pricing marginally decreases or increases depending on our sustainability performance over time.

Incorporating a financial-based pricing penalty provides real skin in the game. It enhances the credibility of our loan while incentivising management to maintain our current sustainability performance at an absolute minimum.

GOLDING The sustainability structuring aspects of our loan are slightly different. We achieve a financial benefit if we meet our target, however the penalty is a nonfinancial but meaningful one that requires us to put our brand and reputation on the line. If our rating deteriorates below an agreed level the loan loses its ESG status and we are required to make a public announcement to this effect.

The way we viewed this is that the upside might be A$50,000 but the downside far greater: we would pay far more than A$50,000 to protect our brand and reputation.

We strongly believe that a penalty is important for the credibility of the product and to demonstrate our commitment to the intent of the loan.

Swiss It is possible to use internal metrics or to get an external rating. Which approaches did Adelaide Airport and Sydney Airport take?

MOMDJIAN We chose to go down the external rating path by engaging with Sustainalytics. But there are pros and cons to both approaches. We used an external rating to open ourselves up to delivering planned and potential new sustainability improvements across the entire ESG spectrum. Other issuers may be more focused on predetermined internal metrics that address aspects of sustainability.

GOLDING We had a similar approach. We decided to go down the externally rated path because it provides a more rounded perspective of sustainability rather than using specific measures or metrics. This fits with how we view sustainability: as a holistic approach to our business.

The all-encompassing ESG risk rating provides the flexibility to work out what initiatives and improvements are meaningful to us as an airport and focus on the areas that will genuinely make a difference.

“The opportunity the SLL presents is an incentive to change behaviour, which creates the opportunity for different outcomes. This is more likely to get corporate borrowers interested.”

Swiss Over what sort of timeline do the improvement and deterioration metrics apply, and how often do you have to report?

GOLDING We put together our documentation with an undertaking to provide an ESG risk rating report on an annual basis. We need to update and provide this by 31 December each year and have engaged Sustainalytics to do so.

If the score has deteriorated to a certain level when we submit this report, we would need to work with our lender to agree on corrective actions to be implemented on an agreed timetable. In the event that we’re unable to meet this requirement the next step would be triggered – which, as mentioned, is that the loan loses its ESG status and we would need to make a public statement to this effect. If we reach our target, on the other hand, the pricing incentive applies from the next roll date.

MOMDJIAN We also provide an ESG risk rating summary report to lenders annually. This report contains an ESG risk rating, determined by Sustainalytics, which is measured as a score out of 100 – the lower the score the better.

Throughout the year we will deliver sustainability improvements and communicate them through our annual sustainability reporting approach and engagement with Sustainalytics.

Changes are binary and not cumulative, with the possibility of fluctuating across discount, base and penalty pricing over the life of the loan depending on our sustainability performance.


Bradburn If the airports hadn’t issued SLLs could they have used their leverage to get an equivalent price?

MOMDJIAN We made sure the SLL price discount was real by achieving the best possible base price before introducing the concept of a modest but meaningful price discount. This strategic approach ensured we achieved the most attractive pricing, as any treasurer would naturally seek to do as part of a financing process, while ensuring banks genuinely reward sustainability improvements.

GOLDING We also led a regular, competitive refinancing process in parallel to the SLL. The ESG-linked pricing outcome was competitive with the regular bilateral process even without the incentive. Pricing on the SLL is superior if we hit our target.

Craig What kind of pricing discount can issuers generally achieve through SLLs?

CHO ING has been involved in more than 60 SLL transactions and typically the client achieves the market pricing rate. From this base point, the swing factor is approximately 5-10 per cent of the commercial pricing margin.

HO I think it is a great strategy to set a nongreen benchmark first and then to challenge the bank or banks to put their money where their mouth is.

MOMDJIAN A savvy bank would price in this differential. We wanted to set a discount that was modest but meaningful only after achieving the best possible base price. Setting an exorbitant discount would have likely resulted in many banks dropping out of the process.

We wanted to make sure we had as many lenders on board as possible. This was not only to maintain our high-quality banking group but to broaden and improve the level of familiarity in the banking community to help minimise execution risk for other issuers interested in this product.

Larkin How much time and effort did it take to get your respective boards across the line for this type of borrowing?

GOLDING The Adelaide Airport board is already very supportive of sustainability initiatives so it was fairly quick and easy to get them over the line. The board’s focus was around how the product would work. They were comfortable with the mechanics of this, as well as the downside consequences, within a single board meeting.

MOMDJIAN We have developed a solid track record with our board in managing our capital structure. How the SLL complements our broader sustainability strategy coupled with the ability to create a clear link between our sustainability performance and funding costs were a bonus.

Our board’s receptiveness to new ideas and trust in management autonomously to deliver both capital-management and sustainability outcomes certainly made it a lot easier for us.

In addition, the transparency in the pricing discount an SLL offers – relative to a green bond – was helpful in garnering internal support.

We not only had to engage the board but also executive management, because ultimately these people and their teams would be tasked with delivering sustainability improvements in conjunction with our sustainability team.

Verification process

As the environmental, social and governance (ESG) finance market grows, so does focus on robust and credible standards for securities. As a relatively bespoke product based on borrowers’ sustainability targets, the sustainability-linked loan (SLL) is no different.

CRAIG Sustainalytics has played an important role in the SLL transactions we’ve seen in Australia to date. What goes into the Sustainalytics rating?

GANDOLFO Sustainalytics plays a key role as a provider of ESG ratings and data in rating more than 11,000 companies globally. We primarily determine our company assessments by evaluating public disclosures.

We include this information in our model and provide a rating and a report. This is updated annually and becomes the basis of our new score for the following year. This is frequently used as the key benchmark and driver of the pricing matrix for an SLL.




Bradburn How much compliance cost does it add? Have you needed to increase sustainability resources or even rebalance them with people working in the finance department?

GOLDING The only compliance cost for us was the additional cost of seeking the external rating from Sustainalytics. The incremental effort is not too onerous because we already participate in similar benchmarking and rating processes, one of which is the Global Real Estate Sustainability Benchmark (GRESB). We already have this information ready to go and are able to provide it within our existing sustainability resources.

Although it has not triggered any additional resourcing requirement, we are conscious that it does consume our sustainability team’s time – time that could be spent on other sustainability projects.

MOMDJIAN The additional cost is marginal. We were the first Australian airport to report on sustainability, back in 2014, and have been publishing annual sustainability reports ever since. Our approach to sustainability reporting provides Sustainalytics a one-stop shop in understanding our activities and assessing our achievements.

In addition, maintaining one comprehensive document aligns well with the first of the sustainability-linked loan principles (SLLPs) – which encourages issuers to link their sustainability objectives to their SLL targets.

GOLDING We would certainly look to issue another SLL or other sustainability-linked finance when the need arises. Part of why we signed this loan was certainty of future access to capital. As I mentioned earlier, we noticed increasing interest from investors and got the sense that sustainability considerations might quickly move from a ‘nice to have’ to a ‘must have’ when it comes to getting funding in the future.

Next time we will consider a bond format, a syndicated loan or potentially amend the remainder of our bilateral facilities. The more we can leverage this across the debt book the more attractive the pricing benefits become and the more it outweighs the compliance costs.


Craig The key difference between an SLL and a green loan or bond is that SLLs do not have to be tied to specific use of proceeds but to sustainability performance at entity level. Does this help make the product relevant to an emitter like Qantas?

YOUNG We have looked into SLLs. At Qantas, most of our financing is associated with aircraft purchases and leasing so our challenge is whether a loan of this type would be suitable and how we would manage the metrics on KPIs for aircraft.

We are being attacked from all angles for being a big emitter and we have limited opportunities to address this. We can’t stop using jet fuel and start flying electric planes. We have to find ways to build a portfolio of solutions to help us reduce our emissions.

We can do some of this ourselves and some of it will be enforced through ICAO [International Civil Aviation Organisation] and CORSIA [Carbon Offsetting and Reduction Scheme for International Aviation], which aim to reduce emissions in line with the Paris Agreement.

Starting in 2021, we will be capping our emissions at 2020 levels. We will need to offset any growth from these levels. Meanwhile, growth in aviation from Asia in particular will be significant in the next 10-15 years. ICAO has also said it ultimately wants emissions to be halved.

We will start to look at several key areas in more detail. The overriding one is continuing to upgrade our fleet where we can, moving towards more efficient aircraft that are typically 25 per cent more fuel-efficient than a Boeing 747. The second theme is to reduce weight on aircraft, because burning fuel is as much a function of the weight of the aircraft as the efficiency of the engine.

The third is how we can continue to use carbon offsets. We see these not as a permanent solution but as one for a period of time. The challenge with offsets, particularly in this part of the world, is that there are not enough projects in the pipeline to create the offsets we need at the price points we need.

I can see a credible connection with SLLs here, where we may seek to partner with project developers and others to help build a more assured supply chain for offsetting rather than having market risk on a carbon offset that ranges from A$0.50 to A$100. At this level, emitting 12.5-13 million tonnes of carbon a year could be very costly.

Ultimately, we need government to step up. Many of our challenges are fundamental infrastructure issues, for example around waste. We have sourced compostable cups and we can work through how to get them to Australia efficiently, how to get them onto aircraft and how to get crew to take them from passengers to recycle them. The problem is what to do with them from this point. There is limited composting recycling infrastructure.

These sorts of projects – that are less sexy but critical – are where I think SLLs could prove a useful financing tool for developers of this type of infrastructure and for us.

Biofuel is a big challenge and also an opportunity for us. It is as much a policy issue as a financial one. It is great that biofuel is significantly more efficient but the challenge is that the emission cost of energy burned to create the fuel is often more than the emission cost of jet fuel. Without the right infrastructure, in Australia and globally, its price premium will continue to challenge all airlines.

Global standards and harmonisation

Global efforts are underway to create a common language and standards for sustainable finance, with the EU taxonomy perhaps the biggest development in this space so far. Australian market participants recognise the value of harmonisation but also say it has finite boundaries.

SWISS Will the EU taxonomy report be helpful in addressing issues around reporting and verification?

CHO The interesting part of the EU taxonomy is that it is much more prescriptive as to what the benchmarks for sustainability will be in a variety of sectors.

However, all the parameters used are EU scenarios that focus on the EU economy. While they are useful benchmarks it is important to note this point when assessing direct applications in the rest of the world.

At the International Capital Market Association (ICMA) green-bond principle and the Loan Market Association level, where there is voluntary standard setting, there are a lot of considerations around what it means when different jurisdictions are coming up with different regulatory factors for sustainability. What has been set strictly in one region does not necessarily apply to the rest of the world.




Breen How big of a driver is reputation and how do you balance it with those priorities?

YOUNG It is driven by an overall view of social licence. Qantas turns 100 at the end of this year. We are an iconic national brand and there is social licence that the board and [Qantas chief executive] Alan Joyce are driving. There is also an economic argument if we do these things well.

We are trying to juggle all these balls at the same time. We recognise that aviation can’t switch to an alternate way of operating. We must find a portfolio of solutions.

There is no single driver. It is now a constant agenda item at board and leadership meetings, and it will continue to be a key issue of importance to Qantas as we move into our next 100 years.

Qantas believes in taking a leadership position in managing climate risk. We have the largest consumer-offsetting carbon programme in the world but it is still small relative to what we would like it to be.

“I think it is a great strategy first to set a nongreen benchmark and then to put the challenge to the bank to put their money where their mouth is.”

Craig Where is Ausgrid on its sustainability journey and who is driving its sustainability agenda?

BRADBURN We think of all our sustainability endeavours as good business. As a transition from being a government utility that was state-owned for more than 100 years to a privately owned commercial business, we are genuinely trying to get closer to our customers and to provide better value. Our customers care about sustainability and they get value out of it, so we must be part of the solution.

Our shareholders, IFM Investors and AustralianSuper, genuinely care about sustainability. They look after superannuation money for Australians, and one in five working Australians have their superannuation with AustralianSuper. All these factors work together to encourage companies to make changes and it is pleasing to see the debt market moving in this direction too.

Our material sustainability issues are closely aligned with our strategy and business plan and address the needs of our various stakeholders. This means we have internal targets so we can be a successful organisation and meet the needs of our various stakeholders.

We are further developing our public response to sustainability and will publish our first sustainability report this year as well as setting an emissions-reduction target.

Our business is changing and we have to be part of the solution. Traditionally, the supply chain simply sent electrons one way. But the new world of energy means there will be two-way flow of electrons. The grid is the ‘internet of energy’.

In this world, generation will be more dispersed and more innovative. Traditional generators and retailers will need to adapt or they could become disintermediated as new businesses emerge. New technologies and businesses will all be facilitated by the grid.

Until the technology is in place to transmit electrons through something other than wires, the grid is ideally placed to facilitate new energy solutions. This places us in a strong position to improve the efficiency of electron flows and to reduce the cost of infrastructure, carbon footprint and customer prices.

Ausgrid is getting involved in community batteries and various other ways of distributing energy where we can smooth energy peaks to manage demand and provide a resilient and affordable solution.

If debt investors are extracting value from sustainable debt it is a win-win scenario in which an SLL provides the flexibility to be more dynamic. It would allow us the flexibility to invest in programmes to meet the changing needs of our customers.

With green bonds, the immediate hurdle is the need to find and isolate assets. SLLs support action we are already taking in addressing our material sustainability issues and, from what I’m hearing today, they do not add a significant burden to the business.

It’s worth mentioning that affordability is a material sustainability issue for Ausgrid. If we can achieve interest savings and provide value to our customers through lower energy bills it is an excellent outcome.

But our sustainability objectives are wider than affordability. We also know that our stakeholders are concerned about safety, emerging technology, having a resilient network, cyber and physical security, and community and customer engagement. An SLL allows us to choose appropriate outcomes that fit our business objectives and sustainability pathway.

“If debt investors are extracting value from sustainable debt it is a win-win scenario in which an SLL provides the flexibility to be more dynamic. It would allow us the flexibility to invest in programmes to meet the changing needs of our customers.”


Craig The property sector in Australia is one that has found it possible to identify assets for use-of-proceeds green funding. How does this affect the way a company like Lendlease thinks about SLLs?

LARKIN The SLL product is very interesting. Australia is a bank-driven market so it is likely to get more traction. It is relevant for borrowers that are seeking to lift their sustainability performance, but it is equally applicable to those already doing a lot but that want to find ways to be even more ambitious.

As you suggest, we have many projects and funds that would qualify for green financing – because sustainability is a core part of Lendlease’s strategy. Part of this is about the legacy we leave with the places we create. Another part revolves around what Michael Momdjian said: it is important to our stakeholders, customers, employees, investors, tenants and shareholders.

The other aspect is that we think sustainability can provide a competitive advantage. We will deliver a better outcome in the projects we are initiating and for the people who live and work in those places.

The issue from my perspective – and the opportunity in the sustainability-linked model – is that while a use-of-proceeds financing adds value if you can’t get financing otherwise, most big corporates have good access to financing. Most importantly, what beneficial changes for the world are we making by doing a green loan or bond versus it not being green? The opportunity the SLL presents is an incentive to change behaviour, which creates the opportunity for different outcomes.

This is more likely to get corporate borrowers interested. Of course pricing is important, too, because the whole economy works on price signals. This is how you drive behaviour.

There is a big opportunity for financing to provide an incentive for borrowers to do something different and to create real difference in the world. Hopefully the SLL product will get more pick-up than use-of-proceeds types of financing and drive changed behaviour, at least for large corporates.

CHO What will make a difference is willingness from the borrowers and banks that agree to sign this type of loan to set ambitious targets – ones that are not impossible to meet but are a stretch over and beyond what they otherwise would do.

MOMDJIAN It is one thing to give yourself that pat on the back. But it is another to sit with other corporates and share aspects of your strategy and process to try to develop the product. It would be different if we were all closed to these sorts of conversations. But I think we are all in this together and can all add value, whether through a use-of-proceeds or an SLL approach. Having the conversation is as important as doing the deal.

LARKIN The other thing I would say is that it is not just carbon intensity, energy efficiency and waste diversion that are important to our businesses and stakeholders. We also spend a lot of time focusing on considerations around wellness, how people use spaces and the impact the places we create have on communities and the people who use them.

There is an opportunity with the SLL product for a broader conception of a sustainability-linked financing to help create other positive outcomes. A mechanism that creates incentives to deliver these outcomes should get more interest.

“We can’t stop using jet fuel and start flying electric planes. We have to find ways to build a portfolio of solutions to help us reduce our emissions.”

Ho Can a company like Lendlease extract more from positive market perception, given the contribution that office and residential properties make to greenhouse-gas emissions?

LARKIN We are currently looking at a couple of deals and we hope soon to be able to do something green or sustainability-linked. Our challenge to date has been the substantive outcome of doing a green financing. What is it going to contribute to the world?

Barangaroo is a zero-net-carbon precinct. APPF Commercial is the top-ranked commercial fund in the world for the second year running. We have four of the top-10 wholesale funds ranked by GRESB. All of this is integral to the business, so what is the incremental outcome from doing green financing?

If we look at debt capital markets today, I can see there is value in green financing. It’s probably not much of a pricing benefit in primary issuance, but I think there probably is better performance in secondary trading. There is probably also slightly stickier demand.

We are not talking about big differences, but I think there is a reasonable case to be made that a green instrument may receive a more favourable reception relative to a vanilla instrument.

CHO We find that the scale of the difference in response depends on the currency when issuers come to the bond market. But sustainability issuance certainly decreases execution risk. When markets are good this is less visible but if markets are more volatile it is important for an issuer to do all it can to decrease execution risk.

LARKIN During our normal debt-investor updates, some investors have asked whether we can do something green. Over the last couple of years, the value in green-bond issuance has become clearer – although it’s still hard to quantify.

With SLLs, the incremental value piece comes back to what Sydney Airport and Adelaide Airport did: establishing the market for a vanilla transaction then showing what the overlay is to make it sustainability-linked.

I’m distinguishing between the case for the financing itself to be green as opposed to the underlying assets, project or fund. To me, this is where the opportunity exists – in linking sustainability performance to financing. It also depends on the issuer and the project, though.

I don’t want to suggest there is no value in use-of-proceeds financing. There will be projects and borrowers that get access to funding they may not otherwise have had because they are a green borrower or a green project. This is a good thing. What I am saying is that if you are looking at large, rated corporates, I’m not sure that use-of-proceeds financing has the same impact.

MOMDJIAN The pure financing benefits of pricing, greater stickiness of investor demand and the potential for further investor diversification – whether it is through a green bond or a loan – is only part of the picture, though.

The other part is that it needs to drive behavioural change. We want our SLL to add an extra level of motivation in accelerating the implementation of current plans and also incentivise and reward new ideas that deliver sustainability improvements over and above what is currently in the pipeline.

LARKIN It makes it easier for the business to see the connection between what it is doing and an outcome. It has the potential to be a virtuous circle.

MOMDJIAN You are ascribing a financial benefit to what others may think of as an intangible or nonfinancial aspect of their business. People are attracted to this.

CHO Sometimes in companies – and this varies depending on the market – where sustainability has not really been a topic for the treasury team, it is a good way to get it involved in the corporate strategy around sustainability. By doing something concrete like a green bond or SLL treasury learns more about the sustainability progress of the company and can be part of this journey.

GANDOLFO We see this with the banks, issuers and borrowers we work with. Some companies are already there and some have a long way to go with internal alignment. SLLs are a really good way to drive further internal alignment as different parties work together in a focused way to achieve preagreed sustainability targets and outcomes.

Some companies like the fact that a green asset pool is needed for a use-of-proceeds transaction. It is a challenge, but one that can drive behaviour through governance and an increased focus on processes for maintaining and growing a green asset pool.

For example, when banks issue use-of-proceeds bonds, loans come and go as they are repaid so there is pressure to grow and maintain a green asset pool. The rationale for using different instruments varies for different companies.