SLL innovation continues

A pair of Australian sustainability-linked loans completed in September demonstrate the instrument’s evolution and ever-expanding use cases. North Queensland Airports tied its loan to the emerging sustainable finance area of biodiversity, while Pact Group demonstrated the applicability of sustainability-linked funding to the manufacturing sector.

Lisa Uhlman Senior Staff Writer KANGANEWS

North Queensland Airports (NQA)’s sustainability-linked loan (SLL) is the first in Australia to target biodiversity and natural capital. Deal sources say it demonstrates the potential of sustainable finance beyond emissions reduction.

The loan refinances most of NQA’s debt and targets emissions reduction, indigenous engagement, and biodiversity and species conservation. Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Institutional Bank acted as sustainability coordinators for the deal, which was announced on 6 September.

NQA owns and operates Cairns Airport, the land holdings of which include a significant amount of Far North Queensland’s intact coastal forest, as well as Mackay Airport and Mackay Airport Hotel. Almost half the company’s 350 hectares of land is carbon-sequestering mangrove forests.

The SLL involves NQA working in partnership with the Dawul Wuru Aboriginal Corporation and the local Yirrganydji people to achieve KPIs. Richard Barker, Cairns-based chief executive at NQA, says Cairns Airport’s unique position as a gateway to two UNESCO World Heritage sites – the Great Barrier Reef and the Daintree Rainforest – makes environmental, social and governance (ESG) concerns central to the company’s operations.

“The SLL was driven by what we as an organisation want to achieve and by what our investors are increasingly expecting, which is for us to be making tangible steps to improve ESG performance,” Barker says.

He notes that NQA already had sustainability and social programmes in place when it decided to restructure its debt via an SLL. “With the refinancing coming up, we thought there was an opportunity for us to lock in some of our commitments and build on them by linking to the SLL,” Barker comments.

According to Greg Pauli, Sydney-based head of infrastructure at Westpac, the deal reflects NQA’s appreciation of its responsibilities as a significant local landholder. “The financing was not just about the bricks and mortar and the airport’s operations but also NQA recognising it has a role to play in responsibly managing the land it holds and in working with the traditional owners of that land to deliver sustainable outcomes,” he says.

“The Pact facility demonstrates to other companies that SLLs can feature SPTs that reflect their core, material ESG issues. We are starting to focus on more than just emissions, and the core recycling KPIs in this transaction show that companies in different industries, like manufacturing, are now ready to perform in this space.”


The nature of NQA’s operations, location and footprint led it to incorporate an innovative feature: a performance target focused on biodiversity and species conservation. Bláthnaid Byrne, director, sustainable finance at CBA in Sydney, explains: “NQA’s ESG ambitions well pre-date this transaction and the company has been making commitments and improvements in its operations for quite some time. The SLL is a natural iteration of this and an opportunity for NQA to push itself even further.”

Barker adds that NQA intends its SLL to “put a firm stake in the ground” regarding its sustainability objectives. “We already have an ambitious agenda but the loan requires us to double down and commit to going even further,” he says.

NQA obtained a second-party opinion on the materiality, credibility and ambition of all its targets versus baseline performance, according to James Waddell, director, sustainable finance at NAB in Sydney. “This SLL structure will incentivise NQA to achieve one of the most ambitious net-zero targets among its airport peers,” he tells KangaNews Sustainable Finance.

Pursuant to the biodiversity KPI, NQA will work closely with the Dawul Wuru Aboriginal Corporation’s Yirrganydji Land and Sea Ranger programme to identify at least three threatened species on Cairns Airports’ land holdings and develop and implement site-specific species recovery plans to enhance their habitat. NQA expects it will take about a year to conduct population studies and determine which species will benefit most. 

Leading contenders are the double-eyed fig parrot and the beach stone curlew, which can be common near airports. Barker says the ant plant, which provides breeding ground for rare butterflies, is also on the shortlist. 

The emissions KPI requires NQA to reduce scope-one and scope-two greenhouse gas emissions to net zero by 2025 and to measure and reduce its scope-three emissions. The third KPI supports employment of First Nations people through direct employment and prioritised procurement from contractors. The target is at least 6 per cent Aboriginal or Torres Strait Islander employees – twice the proportion of this demographic in the national population.

“The financing was not just about the bricks and mortar and the airport’s operations but also NQA recognising it has a role to play in responsibly managing the land it holds and in working with the traditional owners of that land to deliver sustainable outcomes.”


Pact, meanwhile, converted nearly half its debt to SLL format as the packaging company seeks to embed its ESG ambitions in its business operations. Deal sources say the new facility is the first loan to an Australian manufacturer featuring a sustainability-linked overlay and shows even hard-to-abate sectors can seize the opportunity to drive change through financing structures.

The deal was arranged and led by CBA, HSBC and Westpac. It refinances A$420 million (US$278.3 million) of Pact’s existing loan facilities and sets broad-based sustainability performance targets and KPIs. DNV provided a second-party opinion on the SLL.

Pact, which aims to lead the circular economy by promoting recycling solutions in packaging, aligned two of the SLL’s four targets with its 2025 “end of waste promise” to eliminate nonrecyclable packaging and offer 30 per cent average recycled content across the company’s plastic packaging portfolio.

Paul Washer, Pact’s Melbourne-based chief financial officer, says the company currently averages 10 per cent recycled content across all the products it manufactures and is aiming to have capacity to recycle more than 120,000 tonnes of plastic waste a year across 12 facilities by the end of 2025, up from about 60,000 tonnes across seven facilities currently.

“The ambition to eliminate nonrecyclable waste has always been a part of Pact’s DNA, so it seemed a very natural fit to use some of our borrowing lines to align our sustainability objectives with our business objectives,” Washer tells KangaNews Sustainable Finance. “The SLL provides some hard measures of what we are doing in the sustainability space and the financial benefit this work can provide.”

To help achieve its targets, Pact will invest A$76 million in new technology and equipment at its packaging manufacturing facilities in Australia. The company is also investing, via joint ventures, in a network of recycling facilities and ramping up output of recycled products including milk bottles, food and industrial packaging, and rubbish bins. In July it announced a partnership to supply Woolworths with 18,000 tonnes of recycled plastic packaging products for the retailer’s own brand range.

The third KPI in the SLL requires a 50 per cent reduction in Pact’s scope-one and scope-two greenhouse gas emissions in Australia and New Zealand by 2030. The final KPI focuses on reducing the gender pay gap by setting annual percentage decrease targets. Deal sources note that Pact is already positioned well inside the 14.1 per cent gender pay gap in Australia so the target represents a proactive measure to allow the company to continue to lead in this area.

“By committing to address the gender pay gap, we hope this loan represents the next iteration of gender-based inclusion and diversity targets companies can focus on,” says Kirsty McCartney, Melbourne-based associate director, sustainable finance at Westpac. She notes that representation, rather than remuneration, has been the more commonly used approach to gender diversity in SLLs.

Deal sources note that Pact’s SLL enshrines the company’s existing sustainability message throughout its business and demonstrates how other manufacturing companies can engage with sustainable finance to support economic transition. Madeleine Harmer, associate director, sustainable finance at CBA in Sydney, says Pact was well positioned to execute the SLL after making its 2025 “end of waste promise” commitments in 2018.

“The Pact facility demonstrates to other companies that SLLs can feature SPTs that reflect their core, material ESG issues,” Harmer says. “We are starting to focus on more than just emissions, and the core recycling KPIs in this transaction show that companies in different industries, like manufacturing, are now ready to perform in this space.”

Amanda Taylor, Sydney-based head of large corporates and sustainable finance at HSBC, adds: “Pact being the first mover in [the manufacturing] space should encourage similar companies to make meaningful and tangible sustainability commitments for their operations, with sustainable finance providing another option for implementation of ESG objectives.”