Coles’ $A1.3bn sustainability linked loan sets bar

Food, liquor and convenience retailer Coles has inked a series of four-year bilateral debt facilities totalling $A1.3 billion in sustainability linked loan (SLL) format, a first for a supermarket operator in Australia and the largest retail SLL in the local market to date.

The financing aligns with the company’s ambition to be Australia’s most-sustainable supermarket. ANZ was joint sustainability coordinator.

“Coles has been very clear around the importance of sustainability to its strategy and dedicated significant resources to ensure that this strategy is put into action,” Karen Brown, Director – Industrials, ANZ said.

“Coles has adopted world’s best practice by setting targets in line with or above global benchmarks in other aspects of sustainability in the industry.”

Coles is Australia’s second largest food and liquor retailer with over 2500 stores, attracting over 20 million customers weekly. As part of the loan, the company has committed to targets relating to greenhouse gas emissions, women in leadership and waste diversion from landfill.

These targets are a subset of Coles’ broader sustainability ambitions under the focus areas of ‘Together to Zero’ and ‘Better Together’.

Looking forward

A SLL is forward-looking, committing a borrower to making demonstrable progress against key environmental, social and governance targets. A borrower typically enjoys a margin discount if the targets are met and a margin premium if the targets are not met.

“The SLL incentive structure is linked to our progress against company-wide sustainability goals with delivery of those goals delivering improved cost of capital, and is therefore an effective tool for driving sustainability throughout our business,” Coles’ Chief Financial Officer Leah Weckert said in a statement  to the Australian Securities Exchange.

SLLs are issued according to the Asia Pacific Loan Market, Loan Market Association and Loan Syndications and Trading Association’s Sustainability Linked Loan Principles.

These principles set the guidelines for sustainable finance borrowers globally regarding the level of ambition and materiality of targets set as part of a transaction. The industry benchmark is for all credible SLLs to be structured in alignment with these principles and to have this alignment verified by an external third party.

The volume of SLLs in Australia is growing exponentially as more companies seek to tie their financing needs to their sustainability strategy. Year to date volumes hit $A6.4 billion, nearly four times the $A1.8 billion completed in 2020 according to ANZ data.   

“By linking the company’s cost of capital directly to their sustainability commitments, Coles is able to demonstrate how serious it is about its ambition to become Australia’s most sustainable supermarket,” Tania Smith, Director – Sustainable Finance, ANZ said.

Sharon Klyne is Associate Director, Institutional Communications, ANZ