Is linking loans to sustainability the future?

Tech giant Philips has secured a unique finance deal that links interest to the company’s sustainability performance, resulting in lower repayments if environmental performance improves.

Posted on 25 April 2017

Tech giant Philips has secured a unique finance deal that links interest to the company’s sustainability performance, resulting in lower repayments if environmental performance improves.  

The €1 billion loan agreed with a consortium of banks will have an interest rate that is dependent on the company’s year-on-year sustainability performance, which will be assessed and benchmarked by an independent third party.

In other words, Philips will pay a lower interest rate if their annual environmental performance improves, and a higher interest rate if performance slips. 

The finance will be used for general corporate purposes and has a maturity date of April 2022. 

‘Integral to business’


Abhijit Bhattacharya, chief financial officer at Royal Philips, said the finance package “underlines our commitment to sustainability as an integral part of how we do business.”

The company’s sustainability goals are set out in its five-year Healthy People, Sustainable Planet programme, adopted in 2016.

They include ensuring operations are carbon neutral and supplied by 100 per cent renewable energy by 2020, and increasing revenues from green products and services.

In particular, Philips aims to increase ‘green revenues’ from products or solutions that offer significant environmental benefits to 70 per cent of sales. It also aims to increase ‘circular revenues’ by 15 per cent, a goal which incorporates meeting certain circular economy requirements such as increasing the amount of recycled materials in products.

The company has already been singled out as a leader in actively engaging with its suppliers on sustainability by targeting ‘risk suppliers’ for participation in training programmes and developing a tool to help suppliers quantify their carbon emissions. 

‘Mind-shift’

ING Bank, which helped to create Philip’s innovative finance model, has claimed that it is the first corporate finance deal of its kind and a “mind-shift in corporate financing”.

Leonie Schreve, head of ING Sustainable Finance, said: “We believe that companies that deliver on sustainability today are the winners of tomorrow; that’s why sustainability is a part of every conversation we have with clients.”

Posted under General Interest and Financial and Professional Services on 25 April 2017