Banks reward corporations that are serious about ESG.
CFOs are getting vocal about their companies’ environmental, social and governance initiatives. A diverse mix of organisations across the S&P 500 index discussed their sustainability efforts during conference calls with analysts last fall.
ESG was also mentioned more than 200 times in investment calls during the fourth quarter, according to research platform Sentieo. But this new fondness for sustainability has little to do with a desire to do good; it is more about efficiency.
When corporations invest in green technology, their leaders can expect to cut operating expenses and reduce borrowing costs. That’s why French multinational Saint-Gobain spent more than $16 million reducing the carbon footprint of its glass manufacturing in India by building two reservoirs of rainwater. The new system keeps the plant running and saves money.
Similarly, equipment maker Schneider Electric has publicized its Walmart contract, which saves one gigaton of carbon by working with suppliers to clean up their practices. A pioneer in sustainable practices, 3M, which introduced its program PPP (Pollution Prevention Pays) as early as 1975, saved more than $1 billion and now is doubling down on its investments to achieve carbon neutrality by 2050 and reduce water use by 25%.
When corporations are serious about their ESG agenda, they can also be rewarded by their bank. In 2017, Dutch conglomerate Philips got a €1 billion ($1.2 billion) loan from ING group that was linked to its sustainability performance and rating. Nowadays, green bonds and loans are more common, and their interest rates depend on defined environmental benefits, goals or key performance indicators. In the Benelux region, recycling company Renewi renegotiated a €550 million green loan, with lower margin payable on its borrowing if certain environmental objectives were reached. In another example, Lafarge Holcim, the building materials manufacturer, launched a €850 million bond last year tied to CO2 reductions. When green ambitions go up, interest rates go down.