A sustainable first - Synlait inks NZ's first ESG-linked loan

Global consumers are increasingly making purchases based on their perception of a product’s environmental sustainability.

This is a trend welcomed by New Zealand dairy manufacturing company Synlait Milk, which has a stated purpose of “doing milk differently for a healthier world”.

In 2018, Synlait released bold sustainability targets focused on reducing greenhouse gas emissions, avoiding the use of coal, improving water quality and supporting farmers and local communities.

As part of that commitment, Synlait and ANZ signed New Zealand’s first Sustainability Linked Loan (SLL) tied to Environmental, Social and Governance (ESG) metrics.

The $NZ50 million four-year loan encourages Synlait to further improve its performance against a set of independent ESG criteria.

“For Synlait, linking our financial arrangements to our ESG performance made perfect sense,” Synlait CFO Nigel Greenwood said.

“It reinforces to our shareholders and stakeholders that we are committed to continuously improving our performance and disclosure and aligns with our company purpose.”

The new loan – which refinances an ANZ existing loan – is structured to provide a discount or premium applied to the base lending margin based on third party assessor Sustainalytics’s annual assessment of Synlait’s exposure to financially material ESG risks.

“Synlait’s strong commitment to sustainable business practices made it an ideal candidate for this type of financing” ANZ’s Head of Sustainable Finance Katharine Tapley said.

“We are excited to have partnered with Synlait to secure New Zealand’s first ESG-linked loan as we jointly showcase that ESG initiatives can deliver material financial benefits.”

Growing

Synlait joins a small but growing number of Australian companies who have completed similar transactions such as Adelaide Airport, Sydney Airport and energy firm AGL Energy.

Sustainability linked loans are the fastest-growing segment of the sustainable finance market according to data from Bloomberg New Energy Finance. Volumes in the first nine months of the year hit $US54.5 billion the data shows, significantly more than the $US44.6 billion of SLLs closed in 2018.

“At ANZ we are very focused on working with our customers to help transition to a low carbon and more sustainably developed economy,” Tapley said.

“Our view is that strong ESG risk and opportunity management is an indicator of strong future performance. We also believe that we can accelerate this transition by incentivising our customers to out-perform on their ESG agendas.”

Synlait’s commitment to improving its environmental sustainability and lowering its carbon footprint ensures it can continue to attract like-minded customers who support its goals.

The company was founded in 2008 with a goal of ensuring global consumers were able to access high quality New Zealand dairy products, including premium infant nutrition products. Among the products it manufactures is a2 Milk’s Platinum infant formula.

For the year ended July 31 its net profit grew by 10 per cent to $NZ82 million, with annual revenue exceeding $NZ1 billion for the first time.

The company’s financial performance is supported by its culture of innovation and its sustainability agenda according to Chief Executive Leon Clement.

“We are committed to doing the right thing for the planet, people and communities,” he said. “We believe we need to play our part and help lead our industry to a low emissions future.”

Committed

Synlait has committed to achieve on-farm reduction of greenhouse gas emissions (GHGs) by 35 per cent per kilogram of milk solids (kgMS) by 2028, including a reduction of methane by 30 per cent.

By 2028 the company is also aiming to reduce greenhouse gas emissions by 50 per cent for its manufacturing sites and supply chains.

The company recently installed New Zealand’s largest electrode boiler for its liquid milk plant at Dunsandel and has committed not to use coal fired boilers in the future.

Synlait is also asking its farmers to voluntarily commit to delivering reductions in greenhouse gas emissions and water use, with incentives offered for doing so through its Lead With Pride program.

The program recognises and rewards milk suppliers who achieve dairy farming best practice in the areas of environment, animal welfare, social responsibility and milk quality.

Its next goal is to achieve B-Corp Certification - certified businesses that meet the highest standards of social and environmental performance.

“We believe it is important we come together as leaders of our industry, as a scientific community, and across the public sector to address our shared challenges," Clement said.

“This is the problem of our age and we must protect New Zealand’s reputation as a safe and responsible producer of food for our global markets, and the future prosperity of our communitiesand the environment.”

ANZ’s purpose is to shape a world where people and communities thrive, Tapley said.

“We are delivering on that in multiple ways, including by providing our clients with access to Sustainable Finance markets and products such as this loan” she said.

“This is a strategic focus for ANZ and we will continue to work in this way with clients like Synlait who place similar value and importance on dealing with sustainability issues like we do.”