Nowadays, banks are issuing more and more loans that are linked to sustainability performance. All over the globe and across all sectors, we see a strong increase in these sustainability-linked-loans. SBM Offshore secured the first RCF linked to sustainability performance in the oil and gas services industry.To better understand , but also to gain insight how it helped the sustainability agenda of a company, Sustainalize interviewed SBM Offshore to give us some more insight.
SBM Offshore was one of the first companies to receive a sustainability linked loan in the Netherlands through a revolving credit facility. What did it bring SBM Offshore? How is the loan structured? What are tips, tricks and pitfalls? These are one of the many questions we’ve asked Jordan Strik (Global Sustainability Manager at SBM Offshore) and Boudewijn van Schaik (Head of Corporate Finance at SBM Offshore). The interview was with Nick de Ruiter and Marleen Blanson Henkemans of Sustainalize.
Serving two purposes
“We always had a revolving credit facility (RCF)[1] which is refinanced every 4 years” explains Boudewijn. “We were seeking how we could optimize this loan, as it didn’t completely fit our business and the reporting requirements were not in line with our way of working. At the same time, we were getting more and more ambitious in sustainability and as such, actively started seeking possibilities to link our RCF to our sustainability performance.” This way, SBM Offshore could address two purposes: making the RCF more aligned to the business activities and imbed its sustainability activities in the company’s core financing facility.
Discussions with banks
It was ING who was the most advanced at the time in providing these types of loans. They helped structuring similar types of loans in the past and were already supporting SBM Offshore with refinancing of its RCF facility. During the structuring process, Rabobank was brought onboard as the dedicated sustainability partner. “We already had clear ideas on what a sustainability linked loan could look like,” explains Jordan. “We also have a strong track record in Health, Safety, Security and Environment [HSSE] and Sustainability, so we were able to use this experience in shaping the right structure. It is, however, important to have one of the banks as a sustainability coordinator. First of all, to challenge the sustainability elements in the loan, but also as a gatekeeper on behalf of the other banks. Both SBM Offshore and the banks wanted to make sure that this loan was not stimulating greenwashing.” The RCF banks consortium was led by ING, with Rabobank as sustainability coordinator and ABN AMRO and MUFG Bank as modelling banks.
Sustainalytics as independent rating
In the discussions regarding the set-up of the RCF, and particularly the sustainability metrics, it soon became clear that it was best to link the RCF to an independent rating. Sustainalytics was chosen since it was deemed a very robust and a well-known rating globally. “Both SBM Offshore and the banks wanted to find an objective and consistent way of measuring the improvements in sustainability,” explains Jordan. “We could have linked it to internal KPIs, but linking it to an independent rating mitigated any risk of bias.” As such, the loan is linked to the performance of SBM Offshore in the Sustainalytics rating and to what extent it is making progress on its score. Sustainalytics performs a rating every year. But does it also pose challenges for SBM Offshore? “We are continuously improving our sustainability performance framework , factoring in learnings from but also challenging methods by external ratings agencies” tells Jordan. “For instance, we use the global standards and an industry framework to measure CO2 emission per production unit, whereas some rating agencies use CO2 emission per revenue. This method however makes less sense for the revenue model SBM Offshore has.” Moreover, SBM Offshore has aligned its sustainability performance to company remuneration. A percentage of incentive pay is linked to the achievement of sustainability targets which are based on the United Nations Sustainable Development Goals [SDG] framework. By performing on these targets, SBM Offshore ensures performance as measured by external rating agencies. Also important is to take action and learnings based on underperformance and to be open on this to stakeholders.
Read the full interview on the website of Sustainalize
[1] An RCF is a mechanism by which the Company has access to a committed credit facility on relatively short notice and is able to utilize the funds for various purposes.
