Making finance teams sustainability experts: Exploring Holcim’s €850m sustainability-linked bond

From L to R: Holcim's Magali Anderson and Geraldine Picaud

Sustainability and finance have traditionally been separated by a chasm. While many corporates woke up relatively early to the idea of CSR – which has since rapidly evolved into ESG and now the pressing need to meet net-zero – the often held view is that it took finance a little longer to respond to the climate crisis.

While edie has reported on the evolution of corporate sustainability for more than three decades, it wasn’t until 2019 when we felt it was comfortable to pronounce that green finance was “going mainstream”.

The introduction of the Task Force on Climate-Related Financial Disclosures (TCFD) created a ripple effect across the finance community, with initiatives like Bankers for Net-Zero and the Net-Zero Asset Alliance now driving climate awareness and action across the sector.

While the global green finance market has grown by more than a hundred-fold over the last decade, it still only accounts for 4% of the global finance market. Yet that has been enough for corporates to reapproach how they engage with their own finance teams and the wider finance community to help drive progress towards net-zero.

“After the release of our new climate strategy in September 2020, we had a strong and credible case to take a step further in our sustainability journey,” Holcim’s chief sustainability officer Magali Anderson told edie.

“Recognising the role of sustainable finance in supporting the transition to a low-carbon and more resource efficient economy, Sustainability and Finance teams worked hand in hand to have a bigger impact.”

Anderson is reflecting on the company’s decision to link financial loans from banks and investors to the firm’s own sustainability targets.

Back in 2020, the world’s largest cement manufacturer, Holcim, priced an €850m bond linked to its sustainability targets.

Holcim’s €850m sustainability-linked bond comes with a “coupon bond” – a debt obligation representing interest payments – of 0.5% that matures in 2031. Investors into the bond will access a higher coupon yield if the company is unable to meet the sustainability targets tied to the bond, including an aim to reduce emissions to 475 kg net CO₂ per tonne of cementitious material by 2030. The CO2 target was recently unveiled by the company as part of a new set of decarbonisation goals.

According to Anderson, the issuance of the loan had helped create a “cross-functional” approach to work that has placed sustainability “at the heart of every discussion”, and crucially with the company’s chief financial officer Géraldine Picaud.

Picaud told edie that the benefits of the sustainability-linked loan have been “many and measurable” largely because the sustainability targets themselves are science-based and therefore credible.

“Since the first release of our framework, it has continuously evolved in order to integrate more key performance indicators fully aligned with the sustainability strategy of the company,” Picaud said. “Today we have issued different sustainability-linked instruments (in the capital and loan markets) aligned with core sustainability indicators such as climate, water and safety and we have the target to reach more than 40% of sustainable financing by 2025.

“The benefits are many and measurable: this kind of financing brings further diversification and increases the investor base, it sometimes improves the financing conditions as the demand for such products is higher, it shows the company commitment towards sustainability and incentivizes companies to reach their targets.”

Set in science

Holcim is one of many firms to have ventured down the route of linking sustainability performance to financial implications. The likes of Kingfisher, Kingspan, AB InBev, Thai Union and Tesco, which is now also supporting suppliers to follow suit, have all announced similar loans.

Both Anderson and Picaud believe that the company’s approach to science-based decarbonisation provides a lot of confidence that the financial implications of missing its sustainability targets, and therefore paying a higher interest on the loan, are helping to invigorate the wider business to act.

The company has joined the SBTi’s Business Ambition for 1.5°C, committing to science-based targets aligned to the highest ambition of the Paris Agreement, with a long-term trajectory of reaching net-zero emissions by 2050 at the latest.

Intermediate targets have been set for 2030 to reduce scope 1 and 2 emissions by 21% per tonne of cementitious materials against a 2018 baseline. This target will see scope 1 emissions reduced by 17.5% and scope 2 emissions by 65% in the same timeframe. LafargeHolcim will reduce its transportation and fuel-related emissions by 20%. All of these targets have been approved by the SBTi.

For Picaud, the finance team is now evolving to the point where sustainability is integral and the company’s strong targets on climate have helped strengthen the relationship between the two departments.

“We work closely together,” Picaud said. “There is no investor meeting for example where our decarbonisation roadmap is not mentioned. We also have dedicated meetings between investors and our colleagues from the Sustainability team to discuss environmental and social topics. The finance function has evolved, and the financing officer of today has become a sustainability expert.”

Picaud added that the science-based approach to decarbonisation had provided investor certainty as well, with the transaction for the loan more than three times oversubscribed, suggesting that investors view those targets as ambitious, deliverable and justifiable in terms of the wider need for the finance community to drive tangible decarbonisation progress.

Wider efforts

Moving forward, Picaud is keen to ensure that financial decisions continue to extend beyond decarbonisation to account for wider sustainability ambitions.

Last year, the company launched what it claims is the first strategy in the sector targeting a net-positive impact on biodiversity, choosing a 2030 deadline.

The new targets have been developed as part of a partnership with the International Union for Conservation of Nature (ICUN) and Holcim claims they are “science-driven”.

Commitments to develop nature rehabilitation plans for all quarries by the end of 2022 and to assess the company’s biodiversity baseline across all managed land, using the ICUN’s Biodiversity Indicator Reporting System (BIRS) by 2024 have been introduced.

Holcim has also announced new commitments to achieve water positivity at 75% of its sites by 2030, prioritising sites based in areas deemed to be facing high levels of water risk.

Picaud added that they’ve already committed to “reach 500 million Swiss francs of green capex in 2025” focusing on energy, the circular economy, water and biodiversity.

“In addition, our main sustainability metrics such as CO2, waste recycled or freshwater have been integrated in the company monthly reporting systems allowing Holcim to monitor a balanced scorecard of financial and nonfinancial performance on a regular basis,” Picaud said.

As for Anderson, the involvement of the finance team in Holcim’s sustainability targets has helped provide clarity that the entire business is pushing forward towards the same goal.

“A strong collaboration between CFO and CSO is essential,” Anderson added. “Finance has a key role to play to help their own company transition towards a low-carbon, climate-resilient economy and sustainable business. It’s important to align objectives to operations – nothing worse than giving contradictory objectives, putting the operations in front of an impossible choice.”