Downer has closed its debut A$1.4 billion
Sustainability Linked Loan (SLL), the largest in Australia in 2020, with BNP
Paribas acting as Joint Bookrunner and Sustainability Co-ordinator. The SLL is
likely to contribute to a re-energisation of the country’s SLL market, as
renewed attention on Environment, Social and Corporate Governance (ESG) brings
sustainable financing to the fore.
Downer is a leading provider of integrated
services in Australia and New Zealand. Downer operates in sectors connected to
investment driven by population growth and urbanisation, including roads, light
rail, power, water, education and telecommunications. These operations contribute
to positive environmental and social benefits, including lower carbon
activities. 
Downer as a company has an ongoing
commitment to a market leading sustainability strategy, confirms Jason Douglas,
Managing Director, Corporate Coverage at BNP Paribas in Sydney.
In October 2020, Downer successfully
completed the 100% acquisition of Spotless, one of Australia’s leading
providers of facilities services. One of
the benefits of the acquisition was the ability to refinance Spotless’ debt by
consolidating debt platforms across the Group. Downer successfully executed the
refinancing with its debut A$1.4 billion Sustainability Linked Loan.
BNP Paribas’ strong relationship with
Downer, and in-depth understanding of their strategy and financing objectives, meant
that the team was able to deliver a tailored Sustainability Linked Loan
solution. “It was clear that an SLL would be a better fit than a green loan or
bond because it could be tied to the company’s overall sustainability
performance rather than individual projects,” said Jason. The SLL further embeds Downer’s sustainability
strategy within the broader business and will help achieve ESG targets. 
The sustainability feature of the facility
is centred around four KPI metrics relating to Downer’s greenhouse gas
emissions reduction pathway and social sustainability. They include validation
of the greenhouse gas emissions targets from Science Based Targets Initiative,
social sustainability features on cultural awareness and mental health, and
wellbeing training of Downer employees. Under the terms of this SLL, the margin
on the loan will vary depending on Downer’s ability to meet the pre-set
environmental and social targets. Meeting these KPIs will lead to a reduction
in borrowing costs under the facility, while missing on the targets would lead
to a margin premium. 
“We put an important emphasis on targets
relating to the reduction of greenhouse gas emissions through the two
environmental KPIs, which anchors the sustainability feature of the facility,”
explained Noemie Peiffer, COO of Investment Banking APAC at BNP Paribas. “These KPIs
cover Scope 1,2 and 3 emissions and reflect Downer’s ambitious decarbonisation
pathway.” 
The third and fourth KPIs are social in
scope, covering health, safety and wellbeing, as well as diversity and
inclusion. “These are truly complementary to the environmental KPIs and
fully in line with Downer’s materiality issues and position as one of the
largest employers in Australia and New Zealand. The combination of
environmental and social targets in the mechanism of the loan is a testament to
Downer’s comprehensive sustainability strategy,” said Noemie. 
Progress against the goals is assessed
annually and validated by an external reviewer, such as an independent
accounting firm.
“The broad benefits of
this format are that it links Downer’s environmental and social performance to
the cost of its debt,” explained Jason. “Sustainability performance is embedded in the organisation, so that the whole
company becomes accountable; it’s up to the individual businesses to deliver on
the KPIs, which brings them together.”The loan was syndicated to the bank market,
where it attracted strong interest and was oversubscribed. A range of institutions
participated, including both international and domestic banks.
As Joint Sustainability
Co-ordinator, BNP Paribas has demonstrated that its sustainability advisory
capabilities, combined with its global presence in sustainable finance, can
help clients achieve meaningful progress in addressing their ESG ambitions
while ensuring their balance sheet performance is enhanced.