CIMB Group launches sustainability-linked loans
Financial incentives given to the borrower upon achieving pre-agreed sustainability performance targets
MALAYSIAN lender CIMB Bank and its Islamic banking subsidiary CIMB Islamic Bank are allocating 3 billion ringgit (US$731.70 million) for their sustainability-linked loans’ (SLLs) scheme for corporate borrowers who are keen to enhance their sustainability performance in alignment with any of the 17 United Nations Sustainable Development Goals (SDGs).
SLLs are a type of financing instrument and/or contingent facility where the borrower was given financial incentives upon achieving pre-agreed sustainability performance targets (SPTs). Incentives are offered, in the form of interest rate rebates, if the borrower is able to demonstrate that it has achieved its SPTs.
SLLs assist and encourage borrowers to improve their sustainability profile or commitment as the financing terms and conditions are aligned to their SPTs. The SLL incentive is available from January 1 2020 to December 31 2024. The use of proceeds in SLLs are not necessarily limited to green projects, but can also be for general corporate purposes.
In announcing the SLL scheme, CIMB group CEO Tengku Dato’ Sri Zafrul Aziz notes that CIMB has introduced several new initiatives in the past year to intensify sustainability awareness and action with propositions that can create real, lasting impact environmentally, economically and socially (EES).
He says: “The SLLs have been introduced from our active engagement with our clients to encourage them to embark on and further their own sustainability journeys. The SLLs are a catalyst to urge businesses to embed EES considerations in their strategies in order to operate responsibly for the long-term well-being and sustainability of our environment and communities.”
He adds SDGs and indicators can be adjusted to be in line with the clients’ sustainability strategies and used as a guidance in the setting of SPTs. By working together with clients, the SLLs would be a start for CIMB to assist them to understand their EES risks and opportunities and encourage them to address those risks and leverage the opportunities.
Among the SDGs which may be relevant to corporate borrowers include quality education; gender equality; industry, innovation and infrastructure; or even responsible consumption and production.
Examples of SPTs could include reduction in greenhouse gas emissions, percent of electricity from renewable sources, reduction in waste generated, percent of suppliers adhering to pre-determined sustainability requirements, proportion of women in top management positions, reduction in lost time injury and near misses, or proportion of payroll spent on staff training and development.
The identification of suitable SPTs and their measurements could be guided by external consultants, external sustainability indices, borrowers’ internal measurement by their own established sustainability team or from CIMB’s Group sustainability department.
The SLLs by CIMB are guided by the Sustainability Linked Loan Principles 2019 issued by the Asia-Pacific Loan Market Association that advocate best market standards and practices. The principles set out a broad voluntary framework of characteristics based on four core components, which consist of relationship to borrower’s overall sustainability strategy, target setting, reporting and review.
The SLLs are another aspect of CIMB Group’s commitment to sustainability, one of the key pillars of its mid-term growth strategy, Forward23. In the past two years, CIMB Group has introduced several key initiatives in sustainability while creating shared value to its stakeholders.
These include the CIMB SME renewable energy financing programme and the special rate financing for hybrid cars and green buildings. CIMB Bank and CIMB Islamic Bank have rolled out preferential financing rates for new hybrid vehicles and residential properties certified under the Green Building Index (GBI). CIMB clients will be offered 10bp lower interest rates versus the applicable promotion interest rates for new hybrid vehicles as well as for BGI-certified residential properties.
The bank has partnered with Sustainable Energy Development Authority to provide sustainable energy financing for SMEs. It will cover 100% of the cost of acquiring and installing renewable energy technology for SMEs.
In October 2019, CIMB successfully priced a landmark US$680 million Formosa SDG bond, the proceeds of which are channeled to eligible assets under the seven SDGs to which the CIMB Group has committed. This was the first ever SDG bond to be issued out of Asean in the Reg S international capital markets and the Formosa market.
The five-year transaction was priced 15bp tighter than what it would have been priced in the conventional Reg S US dollar public market on the back of the demand from onshore Taiwan investors.
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