Sustainability-Linked Loans Increase to Food and Ag Firms

Laurence Fletcher reported late last month at The Financial Times Online that, “A surge in interest by banks and companies in proving their ethical credentials is driving rapid growth in sustainability-linked loans (SLLs) to food and agriculture firms, but they are not for everyone.

“SLLs — corporate lending whose interest rate can rise or fall depending on whether the borrower hits pre-agreed ethical targets — are one of the hottest areas of environmental, social and governance investing. They are benefiting from the global growth in sustainable investing, with assets worth more than $30tn in 2018, according to the Global Sustainable Investment Alliance.

“After surging by 190 per cent to $135.3bn last year, the total amount of lending in 2020 is likely to be smaller, owing to the coronavirus pandemic.”

The FT article noted that, “But it will still be far above the $4.3bn total for 2017, the year in which the sector is widely seen to have started with a loan to Dutch conglomerate Philips.

“Since then SLLs have gained traction in the food and agriculture sector, with lending to the likes of China’s Cofco International, Thai sugar producer Mitr Phol Group, and coffee, sugar and wheat trader Louis Dreyfus.

“But with this type of lending in its infancy, methods of drawing up such loans are still being developed and parts of the process can appear off-putting to new entrants.”

Mr. Fletcher explained that, “Greater complexity, a lack of standardisation and the potential for extra costs can act as a barrier, even though the sector has the potential to help businesses achieve — and be seen to achieve — sustainability goals.”

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