Call it a virtuous cycle. As the number of companies pursuing sustainability has increased, so has the sustainability finance market, and as a result, more companies have become more environmentally friendly. Under pressure in areas ranging from greenhouse gas emissions to biodiversity, agribusiness is increasingly enthusiastic about participating.
Sustainability-linked loans (SLLs) have proven to be a particular area of interest. Just four years ago, the market grew from about $ 50 billion in 2018 to $ 330 billion in new issuance this year, according to a study released this month by Bank of America. “Sustainability-linked loans have grown tremendously over the last few years,” says BofA.
Under the terms of these loan agreements, a company must pay investors a high interest rate if it fails to meet its agreed sustainability goals. However, companies like SLL deal with the flexibility they give to their use of revenue. BofA says the main reason is that it accounts for about $ 700 billion of the total market for loans related to environmental, social and governance (ESG) factors. ..
And while “greenwashing,” which promises more to the environment than businesses offer, remains a long-standing concern, lenders continue to crack down. In May, the US industry group Loan Syndications and Trading Association (LSTA) tightened SLL requirements. Therefore, the borrower must obtain an independent external validation of the environmental performance against the target.
As more corporate sectors seek to harness their willingness to invest in ESG, standards setters are responding with professional guidance. In June, the UK-based Climate Bonds Initiative announced Agribusiness standards We are considering issuing green debt. For the first time, standards for livestock, such as animal welfare and feed sources, have been added. The impact on the environment has been criticized.
Many impact investors have been reluctant to finance livestock trade due to environmental risks, according to Lini Wollenberg, a research professor at the University of Vermont, who headed CBI’s technical agriculture consultant. In response, she explains to corporate borrowers, “The CBI has made it very clear that they want to set higher standards.”
“CBI standards should at least provide investors with sufficient assurance that climate risk will be minimized,” she adds. “Green debt provides an opportunity for finance to create incentives to guide the sector in a sustainable direction.”
To date, one of the largest SLLs in the agricultural sector was $ 2.1 billion. Agreed transaction Cofco International in China in 2019. This is the largest evergreen line of credit for commodity traders, $ 745 Million Sustainability Loan For the Gunvor Group, a Swiss-based commodity trader in 2018.
Rating provider Sustainalytics said Cofco achieved its sustainability goals…
Read More: Food industry shows growing appetite for green finance