A Bounce in Treasury's Step: The Feelgood Factor of Sustainable Finance
By Ben Poole, Columnist
Capitalising on a proven commitment to environmental, social and corporate governance, rubber industry giant Corrie MacColl recently obtained a unique sustainability-linked loan. Ryan Wiener, the company’s Global Head of Strategic Marketing, explains how the criteria of the loan were agreed, and how the choice of banking partner was made.
Environmental, social and corporate governance (ESG) lies at the core of Corrie MacColl’s business principles. A subsidiary of Halcyon Agri Corporation, the natural rubber producer owns and manages the world’s largest rubber plantation, 100,000 hectares, in Cameroon.
“Cameroon is not a traditional source of rubber,” admits Wiener. “So our aim is to solidify its place on the map.” Achieving this means going further than just producing rubber, he believes. “Our goal is to create a great product that doesn’t just minimise the environmental impact of its production, but also positively influences its place and people of origin to create a natural rubber that is truly sustainable.”
With this aim in mind, the company, which is the largest private-sector employer in Cameroon, has implemented a strategy to tackle the challenging task of marrying socio-economic development with environmental preservation. Over the past couple of years, among other progressive strides, Corrie MacColl has announced a zero-deforestation commitment in Cameroon, become a signatory to the United Nations Global Compact, and launched BOUNCE, the world’s first sustainable rubber movement anchored by the UN Sustainable Development Goals.
Embedding ESG in finance
With a high-level company commitment to sustainability, it is perhaps no surprise that Corrie MacColl has also applied its ESG principles to its finances. Specifically, in July 2020, it was announced that Deutsche Bank’s Corporate Bank had provided Corrie MacColl with a $25m sustainability-linked loan (SLL) facility with a three-year tenor, and an accordion feature to upsize the facility to US$75m.
The purpose of the facility is to finance the company’s capital expenditure (capex) investments for its rubber plantations in Cameroon and Malaysia. Rubber prices have been low for many years and have even been below production cost for some time, which has created a challenging environment for Corrie MacColl – hence the search for external financing.
“We have had to significantly invest in our plantations, particularly in Cameroon where we took over management in late 2016,” continues Wiener. “The sustainable projects that we have implemented over the past couple of years, such as our Social Action Plan and the preservation of 25,000 hectares of forest, have all helped to get us into a position where we would be eligible for a sustainability loan.”
The proceeds of the loan will be used for the maintenance of Halcyon’s rubber plantations while promoting its Cameroon Outgrower Programme, which aims to provide additional food security and boost the income of 13,000 local smallholder farmers.
“Unfortunately, when it comes to responsibility or sustainability, rubber is far behind other industries,” says Wiener. “There are no industry-wide standards which means that prices do not reflect sustainability investments. There is still a lot of work to be done socially with the surrounding communities, providing jobs and improving local living standards. That’s why we wanted the sustainability-linked loan, to facilitate further investment in and around the plantations.”
Setting up the sustainable financing
SLLs are used to incentivise the borrowers’ commitment to sustainability, and to promote and support environmentally and socially sustainable economic activity. Wiener explains: “The terms for these loans are linked to the borrower’s sustainability performance. In our case, this is measured by our ability to meet certain, mutually agreed upon, criteria over the term of the loan.”
When it came to selecting the right banking partner for the sustainable financing, Deutsche Bank was the preferred choice for Corrie MacColl. “Deutsche Bank plays a leading role in this space,” says Wiener. “We are working with other banks and will continue to leverage the experience with Deutsche Bank, but to start with a market leader has always been necessary for us.”
Environmental Resources Management (ERM) in Singapore was appointed by Deutsche Bank to determine the key performance indicators (KPIs) and set the sustainability performance targets (SPTs) that formed the framework for Corrie MacColl’s SLL. Following an extensive due-diligence process, the assessment was carried out according to the following tasks:
- Review of the ESG metrics and targets included in the borrower’s and Halcyon Agri Corporation’s Annual Report and policies
- Review of performance indicators reported in relevant internationally recognised standards, guidelines and certifications
- Synthesis and analysis to establish company-specific ESG criteria
While ESG conditions attached to loan rates are not unusual in corporate lending facilities, it is the comprehensive nature of the KPIs that will set a new standard for the rubber industry, making this commercial loan unique. Commenting at the time of the loan announcement, Jeremy Loh, CFO of Halcyon Agri Corporation, noted: “We are delighted to have chosen Deutsche Bank for this one-of-a-kind loan structure. It was important to us to ensure that we continue to support our clients in a sustainable way, supporting our overall corporate social responsibility strategy and in accordance with developing standards for sustainable financing in the rubber industry.”
Sticking to high standards
With the KPIs and SPTs decided and the financing agreed, the onus is now on Corrie MacColl to meet the agreed sustainability objectives throughout the lifetime of the loan. As such, reporting the firm’s ESG performance is now a yearly pursuit.
“The borrower is required to submit an annual report to the lender, which provides evidence of performance against each SPT,” explains Wiener. “The external consultant, ERM, will complete an independent review of the borrower’s performance against the SPTs on an annual basis.”
For other corporates considering a similar type of financing, Wiener has the following advice: “The term ‘sustainability’ is thrown around a lot today. It is important to understand what it really encompasses, and to receive input from experts in the field, such as non-governmental organisations (NGOs) and civil society organisations. You can then apply that knowledge as part of your core for profit. We will put this loan to good use so we can keep investing in the areas in which we operate and the people working with us.”