Innovative financing leads to improved social and environmental outcomes

Commonwealth Bank and Wesfarmers have signed a $400 million three-year bilateral sustainability-linked loan, the first in Australia to be linked to achieving better social outcomes and the largest to be offered by a single lender. The new sustainability-linked loan transforms an existing Wesfarmers facility by incentivising better social outcomes, through a commitment to increase Indigenous employment opportunities, and enhanced environmental outcomes, through reduced carbon emission intensity.

CBA’s Group Executive for Institutional Banking & Markets, Andrew Hinchliff, says the social and environmental impacts of doing business have never been more important to customers, investors, regulators and the community.

“Environmental, social and governance considerations are very much a top priority for many Australian businesses today, with sustainability really being thought of as a core part of investing for growth. At the heart of it, sustainable finance incentivises improved organisational behaviours that build a better Australia and lead to more sustainable outcomes. It’s been great to collaborate so closely with Wesfarmers over the last several months and superb to see them leading from both an environmental and social point of view,” Mr Hinchliff said.

Chief Financial Officer at Wesfarmers, Anthony Gianotti said: “We were pleased to work with CBA on an innovative facility which recognises the value of investing in sustainability and reflects Wesfarmers’ longstanding core objective of delivering satisfactory returns to shareholders over the long term. We see commitment to ESG performance and sustainability as absolutely aligned with our core objective. It goes to the heart of delivering long-term sustainable value creation and it’s clear our investors, institutional and retail, see it the same way, as do the debt capital markets,” he said

Better sustainable and financial outcomes

Sustainability-linked loans tie a borrower’s cost of funding to their ESG (environmental, social and governance) performance. By meeting ambitious social and environmental targets linked to Indigenous employment and reduced carbon emissions intensity, Wesfarmers will receive a margin discount on their loan. Conversely, material underperformance would trigger an increase in pricing.

Wesfarmers Executive General Manager Corporate Affairs, Naomi Flutter said: “For this facility, we have targets in two areas which have long been a focus for us – reducing the emissions intensity of our hard-to-abate chemicals business and achieving proportional representation for Aboriginal and Torres Strait Islander Peoples in our Australian work force. Very importantly, these align strongly with our focus on our teams members, local communities and the environment.”

“We’re seeing a massive shift in the importance being placed on ESG, with business performance now intrinsically linked to the approach to sustainability. Investors are telling us that sustainable businesses are going to be better run businesses as they focus on the long-term and also on all of their stakeholders,” Mr Hinchliff said.

“We think that sustainable finance has tremendous potential to combine environmental and social impact with responsible capital allocation for corporate Australia, linking organisations’ cost of capital with the increasing community expectations and growing focus on a business’s environmental and societal impacts,” Mr Hinchliff added.

The new Wesfarmers loan follows a $75 million sustainability-linked loan to Queensland Airports Limited to directly reduce carbon emissions that was announced last year.

“Commonwealth Bank is committed to playing our part in driving sustainable outcomes and this includes supporting our customers’ efforts to do the same. It also makes good business sense to finance sustainable businesses for our lending portfolio and ensure a strong alignment of interests,” Mr Hinchliff said.

CBA’s commitment to sustainability

Commonwealth Bank is committed to playing our part in limiting climate change in line with the goals of the Paris Agreement and this includes ensurin business lending policies support the responsible transition to a net zero emissions economy by 2050. Find out more about sustainable financing.

We also assess the environmental, social, and economic impacts of climate change for our Institutional Bank clients and the Bank, and continuously reduce our own Australia-based emissions by investing in smart technologies and practices. We report clearly and openly on how we manage climate-related risks, and track our performance over time, providing regular and transparent disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD). Find out more about our Environmental and Social Framework. You can also find out about our most recent disclosures in our 2019 Annual Report (page 55 to page 63).

CBA is committed to improving the financial wellbeing of Aboriginal and Torres Strait Islander customers and communities and embedding reconciliation throughout our organisation. Find out more about our Reconciliation Action Plan. This includes:

- promoting and advancing the rights of Indigenous Peoples

- achieving parity for Indigenous representation across our workforce and supply chain

- advocating for the importance of cultural capability and engagement, and

- collaborating to address important issues affecting Aboriginal and Torres Strait Islander communities.