A first-of-its-kind financing for Australia’s biggest listed winemaker is the latest sign that the sustainable loan market is maturing quickly as companies and consumers develop a taste for sustainability.
Treasury Wine Estates (TWE) has refinanced AU$1.4 billion of bank debt with a sustainability-linked loan (SLL) that ties its interest payments to commitments that will have a positive impact on society and the environment.
Sustainable business practices are a growing focus in every industry, and agribusiness is no exception. For major producers like TWE, a strong commitment to sustainability is also an opportunity to enhance its profile with key stakeholders including its financiers and its consumers.
The transaction is TWE’s first SLL and the company is the first wine enterprise in Asia Pacific to secure such a loan. It replaces a substantial portion of the company’s outstanding bank debt, including bilateral facilities and a syndicated loan, aligning its group-wide sustainability agenda with its financing strategy.
“As we focus even more closely on building an environmentally and socially responsible business, TWE welcomes the opportunity to embed sustainability principles into the company’s culture,” said TWE Chief Sustainability and External Affairs Officer Kirsten Gray. “Our stewardship of valuable estates in the world’s greatest wine-producing regions is a responsibility we take seriously.”
TWE is one of the world’s largest wine producers with a market capitalisation of close to AU$9 billion. It operates vineyards in locations including Australia’s Barossa Valley, the Napa Valley in the United States, Marlborough in New Zealand, Bordeaux in France and Tuscany in Italy. Globally, the company manages 125 vineyards and 12,686 planted hectares producing premium-branded wines.
Agribusiness on this scale faces significant sustainability challenges, especially around the use of natural resources. TWE’s commitment to address these challenges is reflected in its sustainability strategy, which features comprehensive and ambitious Key Performance Indicators (KPIs). Those KPIs form an integral part of the terms of the new financing arrangement.
Water management is a clear priority for all agribusiness, and TWE is determined to ensure that this precious natural resource is used efficiently with minimal impact on groundwater and surface resources. The terms of the financing include a commitment to review water usage and footprint at a catchment level in 2022.
In addition, to reduce its carbon footprint, TWE will work towards achieving 100% renewable electricity usage by 2024 and reducing its greenhouse gas (GHG) emissions. The KPIs also include gender diversity goals at both a governance level and across the workforce: by 2025, it must achieve 50% women in senior leadership and 42% female representation in the company overall.
Meeting these benchmarks will result in a lower repayment premium on the loan – incentivising the company to adopt best practices across its operations.
Lenders also take comfort in the fact that the KPIs are aligned with the Asia Pacific Loan Market Association (APLMA)’s Sustainability Linked Loan Principles.Connie Lee, Director Capital Markets Group, BNP Paribas Australia and New Zealand
The transaction demonstrated how both syndicate and bilateral lenders are keen to support companies with high-quality, stringently audited sustainability goals, with discernible and ambitious targets. “Lenders also take comfort in the fact that the KPIs are aligned with the Asia Pacific Loan Market Association (APLMA)’s Sustainability Linked Loan Principles,” said Connie Lee, Director Capital Markets Group at BNP Paribas Australia and New Zealand.
Vintage year for SLLs
The growing maturity of Australia’s SLL market is encouraging more companies to tie their sustainability strategies to the cost of financing, allowing them to benefit from lower interest rates as long as key targets are met.
“Providing a tangible financial incentive motivates people in every part of the business to strive towards achieving the company’s sustainability goals,” said Mark Hutchinson, Co-Head of Corporate Clients Group, at BNP Paribas Australia and New Zealand. “BNP Paribas is dedicated to providing best-in-class advice and expertise for clients across a diversity of sectors as they act to deliver more sustainable operations.”
Winemakers like TWE know very well that consumers think about more than just the label and the price when choosing a bottle of wine: the story and culture behind the estate and the owner is often just as important. As sustainability becomes ever more important to consumers and investors, companies will need to show how they are tackling their impact on the environment and on society.