Sustainability and finance have traditionally been separated by a gulf. While many companies woke up relatively early to the idea of CSR – which has since quickly evolved into ESG and now the urgent need to reach net zero – the view is often held that finances have taken a little longer to get up to speed to respond to the climate crisis.
While edie has been reporting on the evolution of corporate sustainability for more than three decades, it wasn’t until 2019 that we found it convenient to announce that green finance was “going mainstream”.
The launch of the Task Force on Climate-Related Financial Disclosures (TCFD) has had a domino effect across the financial community, with initiatives such as Bankers for Net-Zero and the Net-Zero Asset Alliance now driving climate awareness and action across the sector.
While the global green financial market has grown more than 100-fold over the past decade, it still accounts for only 4% of the global financial market. But that was enough for companies to rethink how they work with their own finance teams and the broader financial community to drive progress toward net zero.
“Following the release of our new climate strategy in September 2020, we had a strong and credible case to take a step further on our sustainability journey,” Magali Anderson, Holcim’s Chief Sustainability Officer, told edie.
“Recognizing the role of sustainable finance in supporting the transition to a low-carbon and more resource-efficient economy, the sustainability and finance teams worked hand-in-hand to make a bigger impact.”
Anderson reflects on the company’s decision to tie financial loans from banks and investors to the company’s own sustainability goals.
Already in 2020, the world’s largest cement manufacturer Holcim priced a bond worth 850 million euros that was linked to its sustainability goals.
Holcim’s €850 million sustainability-linked bond has a 0.5% coupon bond maturing in 2031. Investors in the bond will receive a higher coupon yield if the company fails to meet the sustainability goals attached to the bond, including the target of reducing emissions to 475 kg net of CO2 per tonne of cementitious material by 2030. The CO2 target was recently announced by the company as part of a new set of decarbonization targets.
According to Anderson, the award of the loan has helped create a “cross-functional” approach to work that has put sustainability “at the heart of every discussion”, crucially with the company’s chief financial officer, Géraldine Picaud.
Picaud told edie that the benefits of the sustainability-linked loan are “numerous and measurable,” largely because the sustainability goals themselves are science-based and therefore credible.
“Since the initial release of our framework, it has continuously evolved to incorporate more key performance indicators that are fully aligned with the company’s sustainability strategy,” said Picaud. “Today we issued various sustainability-related tools (in the capital and credit markets) that target key sustainability indicators such as climate, water and security, and we aim to reach more than 40% of sustainable financing by 2025.
“The benefits are multiple and measurable: this type of financing brings further diversification and increases the investor base, it sometimes improves financing conditions as demand for such products is higher, it demonstrates the company’s commitment to sustainability and gives companies an incentive to to achieve their goals.”
Located in science
Holcim is one of many companies that have dared to link sustainability performance with financial impact. Similar loans have been announced by companies including Kingfisher, Kingspan, AB InBev, Thai Union and Tesco, which is now helping suppliers follow suit.
Both Anderson and Picaud believe the company’s approach to science-based decarbonization inspires a lot of confidence that the financial impact of failing to meet its sustainability goals and paying higher interest on the loan as a result will help spur the broader company to act.
The company has joined SBTi’s 1.5°C business ambition and committed to science-based targets aligned with the highest ambitions of the Paris Agreement, with the long-term goal of achieving net-zero emissions by 2050 at the latest.
Intermediate targets have been set for 2030 to reduce scope 1 and scope 2 emissions by 21% per tonne of cementitious materials compared to the 2018 baseline. This target calls for a 17.5% reduction in Scope 1 emissions and a 65% reduction in Scope 2 emissions over 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 a point where sustainability is an integral part and the company’s strong climate targets have helped strengthen the relationship between the two departments.
“We work closely together,” said Picaud. “For example, there isn’t an investor meeting where our decarbonization roadmap isn’t mentioned. We also have dedicated meetings between investors and our sustainability team colleagues to discuss environmental and social issues. The finance function has evolved from today’s finance officer to a sustainability expert.”
Picaud added that the science-based approach to decarbonization has also provided investors with reassurance as the transaction for the loan is more than three times oversubscribed, suggesting investors see these targets as ambitious, achievable and in light of broader funding needs defensible community to drive tangible advances in decarbonization.
Going forward, Picaud wants to ensure that financial decisions continue to move beyond decarbonization to accommodate broader sustainability ambitions.
Last year, the company launched what it said was the first strategy in the industry aimed at having a positive net impact on biodiversity, and chose a deadline of 2030.
The new targets were developed as part of a partnership with the International Union for Conservation of Nature (ICUN) and Holcim claims they are “science-driven”.
It introduced commitments to develop nature rehabilitation plans for all quarries by the end of 2022 and to assess the company’s biodiversity base on all farmed land using ICUN’s Biodiversity Indicator Reporting System (BIRS) by 2024.
Holcim has also announced new commitments to be water positive at 75% of its sites by 2030, prioritizing sites in areas considered to be highly water vulnerable.
Picaud added that they have already committed to “reach 500 million Swiss francs in green investments in 2025” with a focus on energy, circular economy, water and biodiversity.
“In addition, our key sustainability metrics such as CO2, recycled waste or fresh water have been integrated into the company’s monthly reporting systems, allowing Holcim to regularly monitor a balanced scorecard of financial and non-financial performance,” said Picaud.
As for Anderson, involving the finance team in Holcim’s sustainability goals has helped provide clarity that the entire company is working towards the same goal.
“Strong collaboration between the CFO and CSO is essential,” added Anderson. “Finance must play a key role in supporting one’s company in the transition to a low-carbon, climate-resilient economy and sustainable business. It’s important to align goals with operations – nothing worse than setting conflicting goals and giving operations an impossible choice.”
© Faversham House Ltd 2022 edie news articles may be copied or forwarded for personal use only. No other reproduction or distribution is permitted without prior written consent.