The ‘revolving credit facility’ agreed between the two Dutch firms will operate through a rating system assessed by independent researcher Sustainalytics. The score of Philips’ benchmarked sustainability performance will decide whether the interest rate goes up or down – the more sustainable the firm is, the better interest rate it gets.

The deal, which is the first in the syndicated loan market where the pricing is linked to a Sustainalytics rating, is supported by a consortium of 16 banks, including Goldman Sachs, HSBC and Morgan Stanley.

“This agreement with Philips is an additional way for us to support, motivate and reward our clients in their aim to become even more sustainable,” said ING head of sustainable finance Leonie Schreve.

“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.”

The Philips loan is different to typical green finance, as it links directly to the improvements in the rating system, which focus on social and governance elements, as well as the environmental aspect. And unlike standard green bonds which limit the proceeds to sustainability purposes, the client will be entitled to use the loan for general corporate deployment, to provide maximum flexibility.  

“Creating sustainability incentives in a financing structure is a mind-shift in corporate financing and a clear innovation in the market,” said Gerro Goedhuis, ING syndicated finance.

Green borrowing

With some investors fearing that the next financial crash will be climate related, a stream of new green bond commitments have disrupted the markets over the past couple of years. ING recently revealed that it had funded more than €27bn to clients aiming to solve environmental challenges in the first two quarters of 2016.

The Philips deal highlights a growing trend within the finance sector of coupling investment to sustainability performance. Last month, for example, the World Bank issued its first ever set of green bonds that directly link financial returns to companies performing to the standards and aims on the United Nation’s Sustainable Development Goals (SDGs).

And just one week after warning that high-level directors could be voted out of companies that are failing to mitigate climate-related risks, the world’s largest investor BlackRock, unveiled its Green Bond Index fund, following a heightened investor demand for ESG fixed income securities and products.

George Ogleby

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