CommBank and Wesfarmers have signed an agreement to upgrade the conglomerate’s existing debt facility to a $400 million loan which is tied to sustainability goals like enhanced indigenous employment and carbon emission reduction.
Wesfarmers will pay less or more for their funding based on their environmental, social and governance (ESG) performance.
The conglomerate says it has the backing of investors and the conditions align with long term shareholder return.
According to CBA, it is the first such loan in Australia to be linked to achieving better social outcomes and the largest from a single lender.
Wesfarmers will receive a margin discount on their loan based on ESG performance. The “ambitious social and environmental” targets include increasing indigenous employment opportunities and reducing carbon emission intensity of its chemicals business.
Conversely, CBA says, “material underperformance” would trigger an increase in pricing.
“Environmental, social and governance considerations are very much a top priority for many Australian businesses today, with sustainability really being thought of as a core part of investing for growth,” said CBA’s group executive for institutional banking and markets, Andrew Hinchliff.
“At the heart of it, sustainable finance incentivises improved organisational behaviours that build a better Australia and lead to more sustainable outcomes.”
Wesfarmers CFO, Anthony Gianotti, said the sustainability goals reflect long term shareholder return.
“We see commitment to ESG performance and sustainability as absolutely aligned with our core objective. It goes to the heart of delivering long-term sustainable value creation and it’s clear our investors, institutional and retail, see it the same way, as do the debt capital markets.”
Australia’s largest bank says it is increasingly clear that business performance is linked to sustainability outcomes.
“We’re seeing a massive shift in the importance being placed on ESG, with business performance now intrinsically linked to the approach to sustainability. Investors are telling us that sustainable businesses are going to be better-run businesses as they focus on the long-term and also on all of their stakeholders,” Hinchliff said.
“We think that sustainable finance has tremendous potential to combine environmental and social impact with responsible capital allocation for corporate Australia, linking organisations’ cost of capital with the increasing community expectations and growing focus on a business’s environmental and societal impacts.”