As a leading voice in sustainable retail, Netherlands-based Ahold Delhaize had already integrated environmental, social and governance (ESG) credentials into its treasury policy in 2019 via the issuance of the first euro-denominated sustainability bond in the retail sector.
In 2020, the company built on that step with the launch of a revolving credit facility (RCF) designed to incentivise the maintenance of high ESG standards via a novel ‘reward or punish’ mechanism. Tied intrinsically to the firm’s broader policies on corporate citizenship, the €1bn RCF provides for either a reduced or increased margin, depending on whether the firm’s activities align with three key performance indicators (KPIs) that are core, relevant and material to food retail:
1. Food waste reduction Linked to a specific percentage drop in tonnage of waste per every €1m of food sales, in support of UN Sustainable Development Goal 12.3;
2. Carbon emissions reduction As measured by a set percentage drop in Scope 1 and Scope 2 CO2-equivalent emissions from the firm’s own operations, aligned with its 2030 goals certified under the Science Based Targets initiative; and
3. Promotion of healthier eating As measured by a set percentage of own-brand food sales from healthy products.
In November, the firm held a bankers' meeting with the aim of introducing its ‘Healthy and Sustainable’ business strategy to 16 lenders and educating them on the rationale behind the KPIs. The outreach met with unanimous buy-in – a result of close collaboration between the firm’s sustainable retail and treasury teams in the run-up.
Alongside its ESG core, the RCF was one of the first products of its kind to include hardwired switch wording to anticipate the discontinuation of LIBOR. In a market dominated by efforts to build contingencies against COVID-19, Ahold Delhaize faced challenges with encouraging its lenders to focus and align on that aspect of the deal.
However, in light of the firm’s track record as a credible borrower with a clear IBOR reform plan, constructive legal counsels and a facility agent were able to accommodate the feature operationally. Rewarding discussions, concluded in a tight time frame, produced wording that satisfied all parties and set an example for other deals to follow.
“The KPIs are quite demanding, so the company has set itself a high bar across a range of business areas, rather than focusing purely on carbon offset.”
Judges also praised the aviation sector’s first-ever sustainability linked financing – which also happened to be wrapped up in the industry’s first-ever transition sukuk. Raising $600m and securing the $300m early repayment of a 2021 debt maturity, Etihad’s deal is supporting the firm’s efforts in three emissions-reduction work streams: sustainable aviation fuels, voluntary carbon offsets and operational efficiencies. Last year, the airline operated four flights using synthetic fuels.