The Asia-Pacific has been behind with the rest of the world when dealing with socially responsible financing, but that’s been changing recently, as companies in the region are riding high on the demand for environmental, social, and governance (ESG) loans, and similar feel-good investments, with the largest syndicated ESG financing in the region having been secured by Sydney Airport in May 2019.
BNP Paribas SA Managing Director for Energy and Infrastructure Chris Ruffa says that lenders are accepting that improved ESG performances means better share performance, and better credit risk. Ruffa is one of the book runners on the Sydney Airport deal, which is valued at a total of AU$1.4bn.
Borrowers are more open to getting evaluated when it comes to ESG objectives, things that a nathers assessor or a social activism group would keep an eye on, and banks, in turn, are more prepared to encourage them with financial incentives, Ruffa explains.
To date, the Asia-Pacific region has fallen behind the other major geographical regions with regards to ESG loans, with the most recent Bloomberg NEF data showing that the Asia-Pacific only saw US$605mn of sustainable loans in 2019, compared to the US’s $4.9bn and the EMEA’s US$15.8bn.
Global loans linked to ESG criteria grew at least seven-fold in 2018, according to data from Bloomberg NEF, with a total value of US$37bn. However, only US$850mn of that involved the Asia-Pacific.
Borrowers are attracted by potentially lower costs, as well as the chance to use the funding for a wider range of objectives, unlike green loans, which are specifically earmarked for environmental projects and developments.
More than 10 lenders committed to the financing for Sydney Airport, which runs Australia’s busiest airport, which had its sustainability rating to ‘out performer’ in 2018 by Sustainalytics, which put it in the world’s top 20 transport infrastructure companies analysed.
Just as how a nathers assessor checks a home’s energy efficiency, an independent assessor can evaluate companies for their ESG performances, which, in turn, can affect the interest costs on their facilities.
Mr. Ruffa notes how sustainability-linked loans have applications across different sectors, and that the outlook for growth is good. The absence of restrictions for the use of proceeds means that they can allow for wider and faster growth, in comparison to green loans.