G8 Education, Australia’s largest publicly listed early childhood care and education company has signed up for a $AU350 million A$350m sustainability-linked loan facility (SLL) with Westpac.
Such approaches to financing are becoming more common as businesses align themselves to more sustainable business operating methods. Last year, for instance, CommBank and Wesfarmers signed an agreement to upgrade the conglomerate’s existing debt facility to a $400 million loan which was tied to sustainability goals like enhanced indigenous employment and carbon emission reduction.
The global SLL market has grown significantly since the first SLL was executed in 2017 and reached USD141bn in 2019 before falling to USD124bn in 2020, according to data sourced from BloombergNEF.
In Australia and New Zealand, volumes followed a similar trend, peaking at USD1.6bn in 2019 before falling to USD1.5bn in 2020.
The weaker volumes in 2020 are partly a result of liquidity requirements taking precedent in refinancing conversations during the COVID-19 pandemic.
The bank acted as the sole sustainability structurer on the deal, while Westpac, Royal Bank of Canada and Commonwealth Bank of Australia have been appointed as joint mandated lead arrangers and bookrunners.
A different approach
The selected Key Performance Indicators (“KPIs”) in the loan are primarily focused on achieving quantifiable and benchmarked social outcomes which are more material to G8’s business than environmental or climate-related targets.
As such the approach differs from recent SLLs in the Australian market
The two Sustainability Performance Targets (“SPTs”) linked to G8’s quality of education and care, and the safety of G8 team members are described as ‘ambitious in a statement by the bank.
The metrics underpinning the KPIs are the Australian Children’s Education and Care Quality Authority rating and Team Member Lost Time Injury Frequency Rate.
G8 CEO and Managing Director Gary Carroll said: “G8 is the first childcare provider to execute an SLL. Including such a structure into our syndicated loan facilities demonstrates our commitment to safety and quality outcomes for our team, children and families.”
The SPTs have been externally reviewed by DNV GL Business Assurance Australia and are consistent with the Asia Pacific Loan Market Association’s Sustainability-Linked Loan Principles.
Westpac’s Head of Sustainable Finance, Michael Chen, said: “Westpac is committed to helping customers move towards more sustainable business models, by funding assets and outcomes to build a better future for all.”
“We have welcomed the opportunity to partner with G8 on this sustainability linked loan, which helps to support G8 in meeting its strategic objective of providing quality early education and care to children as well as ensuring the utmost safety of its team members.”
And we can expect to see more of these types of loans according to Chen
“With pandemic-related liquidity concerns becoming more settled, companies are increasingly turning their focus to ESG and sustainability and we expect to see higher volumes of SLLs raised in 2021,” he said.