Sustainability

Tomorrow’s Tools: Architecting Green Equities

As food and agribusinesses come under fire from consumers and investors to improve sustainability, access to capital is essential to fund initiatives that reduce greenhouse gas emissions, enhance soil health, boost biodiversity, improve water quality, and increase traceability.

Enter “green equities” or sustainability-linked loans (SSLs). Barely four years old, the SSL market has grown to $330 billion in 2021 from about $50 billion in 2018, according to July-published research by Bank of America.

Discover how green equities work and why SSLs might be an opportunity for agribusinesses that purchase U.S. Soy during the U.S. Soy Global Trade Exchange & Specialty Grains Conference Aug. 26, hosted virtually and in St. Louis, Missouri.  Register here.

Commonly known as green debt, green equities and green bonds, SSLs require companies to pay investors higher interest rates if they fail to hit agreed-upon sustainability targets. SLL deals appeal to companies because they offer flexibility over use of loan proceeds. A recent article in the Financial Times suggests this is a key reason that SSLs account for about $700 billion of the overall $1.3 trillion market for loans tied to environmental, social and governance (ESG) factors.

Additionally, green debt provides investors and financiers opportunities to guide the agricultural sector in sustainable directions through incentives, such as lower interest rates. In return, participating companies typically, must show improvement within a pre-defined sustainability metric, with progress tracked and monitored by independent, third parties.

One of the agricultural sector’s largest SLLs was a $2.1 billion deal by China’s Cofco International, in 2019. It was the largest evergreen credit facility for a commodity trader, topping a $745 million sustainability loan for Gunvor Group, the Swiss-based commodity trader, in 2018. Sustainalytics, a ratings provider, says Cofco hit its sustainability targets last year, including year-on-year improvements in the traceability of commodities, such as soy.

According to the Financial Times, Sustainalytics also verified a sustainability bond framework for Kellogg, which the company will use to issue green debt to finance projects to reduce its carbon footprint and help promote sustainable supply chains.

Europe leads the way in SSLs with lenders issuing about $150 billion in sustainability-linked debt in 2020. And it’s catching on around the world. In addition to deals in China and the U.S., Singaporean bank DBS signed a $27 million SSL with Chew’s Agriculture, one of the largest egg producers in Singapore. Chew’s will pay lower interest rates if it meets Humane Farm Animal Care (HFAC) standards.

Similarly, Tereos Sugar & Energy Brazil, announced a $105 million SSL. It will cut carbon emissions and water use in sugarcane production, as well as to increase its ESG scores in exchange for an interest rate margin reduction each year it meets sustainability targets.

Learn more about these trends and their impact on U.S. Soy and agribusiness by registering to attend #USSoyExchange online or in-person Aug. 24-26. Check out the full agenda at http://www.ussoygte.org.

Source: https://www.ft.com/content/450b594a-c803-4f19-af67-71f6633b9cfd

USSEC Staff Writer

Staff Writer

U.S. Soybean Export Council

USSEC is a dynamic partnership of key stakeholders, representing soybean producers, commodity shippers, merchandisers, allied agribusinesses and agricultural organizations. Through a global network of international offices and strong support in the U.S., we help build a preference for U.S. soybeans and soybean products, advocate for the use of soy in feed, aquaculture and human consumption, promote the benefits of soy use through education and connect industry leaders through a robust membership program.