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First of Its Kind Loan: Barclays’ Borrower Pays Less if Sustainability Targets Are Met

Photo credit: 401(K) 2012, Flickr Creative Commons

In a first in the US, a company has entered into a syndicated sustainability-linked revolving loan. CMS Energy and its subsidiary, Consumers Energy, have entered into $1.4 billion revolving credit facilities from Barclays, the sole Sustainability Structuring Agent on the loan. This means that CMS can reduce its interest rate on the new credit by meeting targets related to environmental responsibility, CMS says. Sustainability-linked loans are products that allow issuers to demonstrate their commitment to sustainability, according to Barclays.

Consumers Energy’s sustainability goals, announced earlier this year, include:

  • Reducing carbon emissions by 80% by 2040
  • Zero coal used to generate electricity by 2040
  • Meeting a renewable energy goal of more than 40% by 2040

“From a lender’s perspective, the facilities encourage a company to make its business practices more sustainable by providing a direct financial incentive through the potential for lower financing cost,” Barclays explains. “In addition to the standard pricing grid, the loan structure incorporates a secondary pricing mechanism tied to a sustainability target.”

Improvement or degradation relative to the sustainability benchmark can result in a drawn pricing discount or premium.

CMS Energy’s president and CEO Patti Poppe says the company is committed to a “triple bottom line,” where the company’s success is tied to “people, planet and prosperity.” The new credit facility is “where sustainability and financial results go hand-in-hand.”

In related news, ATP, one of Europe’s biggest pension funds, announced yesterday that it has teamed with five other pension firms to launch the Danish SDG Investment Fund based on the UN’s sustainable development goals.

ATP predicts a 10% to 12% return, according to Bloomberg.

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