Commonwealth Bank (CBA) and Wesfarmers have signed a A$400m three-year bilateral sustainability-linked loan, the first in Australia to be linked to achieving better social outcomes and the largest to be offered by a single lender. The sustainability-linked loan transforms an existing Wesfarmers facility by incentivising better social outcomes, through a commitment to increase Indigenous employment opportunities, and enhanced environmental outcomes, through reduced carbon emission intensity.
CBA’s group executive for Institutional Banking & Markets, Andrew Hinchliff, says the social and environmental impacts of doing business have never been more important to customers, investors, regulators and the community:
“Environmental, social and governance considerations are very much a top priority for many Australian businesses today, with sustainability really being thought of as a core part of investing for growth. At the heart of it, sustainable finance incentivises improved organisational behaviours that build a better Australia and lead to more sustainable outcomes. It’s been great to collaborate so closely with Wesfarmers over the last several months and superb to see them leading from both an environmental and social point of view.”
“We were pleased to work with CBA on an innovative facility which recognises the value of investing in sustainability and reflects Wesfarmers’ longstanding core objective of delivering satisfactory returns to shareholders over the long term,” said Anthony Gianotti, chief financial officer at Wesfarmers. “We see commitment to ESG performance and sustainability as absolutely aligned with our core objective. It goes to the heart of delivering long-term sustainable value creation and it’s clear our investors, institutional and retail, see it the same way, as do the debt capital markets.”
Better sustainable and financial outcomes
Sustainability-linked loans tie a borrower’s cost of funding to their ESG (environmental, social and governance) performance. By meeting ambitious social and environmental targets linked to Indigenous employment and reduced carbon emissions intensity, Wesfarmers will receive a margin discount on their loan. Conversely, material underperformance would trigger an increase in pricing.
“For this facility, we have targets in two areas which have long been a focus for us - reducing the emissions intensity of our hard-to-abate chemicals business and achieving proportional representation for Aboriginal and Torres Strait Islander Peoples in our Australian work force,” said Naomi Flutter, executive general manager Corporate Affairs at Wesfarmers. “Very importantly, these align strongly with our focus on our teams members, local communities and the environment.”
“We’re seeing a massive shift in the importance being placed on ESG, with business performance now intrinsically linked to the approach to sustainability,” added Hinchliff. “Investors are telling us that sustainable businesses are going to be better run businesses as they focus on the long-term and also on all of their stakeholders. We think that sustainable finance has tremendous potential to combine environmental and social impact with responsible capital allocation for corporate Australia, linking organisations’ cost of capital with the increasing community expectations and growing focus on a business’s environmental and societal impacts.”
The new Wesfarmers loan follows a A$75m sustainability-linked loan to Queensland Airports to directly reduce carbon emissions that was announced last year.
CBA’s commitment to sustainability
Commonwealth Bank says it is committed to playing its part in limiting climate change in line with the goals of the Paris Agreement and this includes ensuring business lending policies support the responsible transition to a net zero emissions economy by 2050.
The bank also assesses the environmental, social, and economic impacts of climate change for institutional bank clients and the bank, and continuously reduces its own Australia-based emissions by investing in smart technologies and practices.
The bank says it reports clearly and openly on how it manages climate-related risks, and tracks its performance over time, providing regular and transparent disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD). CBA also says it is committed to improving the financial wellbeing of Aboriginal and Torres Strait Islander customers and communities and embedding reconciliation throughout the organisation. This includes:
- Promoting and advancing the rights of indigenous peoples.
- Achieving parity for indigenous representation across its workforce and supply chain.
- Advocating for the importance of cultural capability and engagement.
- Collaborating to address important issues affecting Aboriginal and Torres Strait Islander communities.
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