Sustainable Finance Solutions

Landmark Sustainability-Linked Loan Indicates A Shift Towards Sustainable Finance Solutions

Equites Property Fund Limited (“Equites”), a JSE-listed real estate investment trust (REIT) focused on logistics assets in South Africa and the UK, has closed a sustainability-linked loan with Standard Bank aimed at promoting the achievement of various environmental, social and corporate governance (ESG) targets.

This funding deal reflects the fact that sustainable finance solutions in the African market are starting to gain real traction as corporates and investors increase their focus on ESG considerations. Sustainability-linked loans tie the cost of funding to ESG outcomes to support and incentivise responsible corporate behaviour and the creation of shared value.

Equites and Standard Bank have concluded a R1.6 billion sustainability-linked facility agreement comprising of two R800 million tranches. The interest rate is linked to Equites’ achievement of certain pre-agreed ESG performance targets.

These target areas include: ESG integration, which relates to green building certifications and other metrics; product governance, which partly relates to occupier satisfaction; business ethics; and human capital, which partly relates to gender pay equality outcomes.

Nigel Beck, Executive and Global Head Sustainable Finance at Standard Bank Group, said: “Partnering closely with Equites to better understand their business has allowed us to build a seamless, multi-disciplined sustainable funding solution.”

In finalising this agreement, Equites has established itself as a pioneer amongst South African REITs in sustainable finance.

Laila Razack, Chief Financial Officer of Equites, said: “The strong foundation that was created through our established relationship with Standard Bank provided a suitable platform onto which we have jointly built a bespoke funding solution that is mutually beneficial.”

“It remains a high priority for us that we continue to conduct business in a sustainable manner and we have therefore placed significant emphasis on the environmental, social and governance elements of our business. We are proud to have pioneered an industry first in the sector with Standard Bank and continue to find innovative solutions to the challenges that we face,” Ms Razack said. “We would like to thank Standard Bank for their ongoing support and commitment to Equites and look forward to a long and prosperous journey ahead.”

Mr Beck noted that Standard Bank is seeing growing demand for sustainable finance solutions. In March, the bank issued its first ever green bond, via a private placement with the International Finance Corporation (IFC). The 10-year US$200 million bond facility will raise capital for on-lending by the group’s Sustainable Finance division, which will fund eligible green assets – renewable energy, energy efficiency, water efficiency and green buildings – aligned to the bank’s Sustainable Bond Framework.

The framework allows the bank to issue sustainable, green and social bonds that support its lending to green projects aimed at mitigating climate change, and to social projects that reduce economic and social inequality. The bond issuance marked a significant step forward for the Sustainable Finance division, at a time when interest from clients is growing considerably.

Research suggests that firms that have robust management of environmental, labour and human rights issues are more financially competitive, more likely to anticipate related legal requirements and have lower credit risk.

Sustainability-linked corporate financing facilities offer clients an opportunity to directly fund ESG improvements, or to refinance existing general corporate funding with a solution that also delivers an indirect socio-economic benefit for the communities and environments in which they operate.

“Equites has effectively demonstrated that African companies can structure financing packages linked to performance against ESG targets, thereby aligning their business goals with sustainability targets,” Mr Beck said. “This structure supports Standard Bank’s own Social, Economic and Environmental (SEE) shared-value strategy, which seeks to deliver business success in a way that improves the human and natural environments in which the bank operates.”

Joan Solms, Real Estate Finance Executive at Standard Bank, said: “The commercial property sector is well suited to sustainable finance solutions, and we expect to see similar deals emerging as the market recognises the value of these financing arrangements.”

“By partnering closely with Equites, we have been able to structure a deal that advances the interests of both ourselves, Equites, the REIT’s shareholders, and society at large,” Ms Solms added.

In 2019, sustainable debt issuances reached a record high of $415bn globally – up 60% from the prior year. While Africa’s sustainable finance market remains in its infancy, it is beginning to gain traction as corporates and investors across the continent recognise the benefits it offers.

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