NYK Takes Out Japan's First "Sustainability-Linked" Loan
Japanese shipping giant Nippon Yusen Kaisha (JPX: 9101) has taken out a 50 billion yen ($456.7 million) loan that has an adjustable interest rate based on the company's corporate social performance.
Banking giant MUFG, headquartered in Tokyo, was the lead arranger for the facility, which was granted on November 29. According to a statement from NYK Line, the loan "encourages sustainable economic activities and growth by linking loan pricing to company performance, which is determined by the score provided by CDP annually. As long as high CDP ratings are maintained, the company's CDP score will not cause the loan's interest rate to change prior to the repayment deadline."
CDP, formerly known as the Carbon Disclosure Project, is a U.K.-headquartered charity that runs a global environmental disclosure system that allows companies – and cities – to self- report their performance in regard to climate change, forests and water security.
According to CDP, over 525 investors with about $96 trillion in assets request that companies disclose their environmental performance through the CDP. A further 120 "major buyers" with a combined purchasing power of $3 trillion ask their suppliers to disclose through CDP. Over 8,400 companies, 800 cities and more than 120 states and regions also disclose their environmental impacts through CDP.
According to NYK, the purpose of the loan is to promote the company's environmental, social and governance principles, which it integrated with its 2018-formed medium-term management plan "Staying Ahead 2020 with Digitalization and Green."
The Loan
NYK's debt facility will run for five years until November 29, 2024.
Syndicate partners in the facility other than MUFG are Mizhuo Bank, Norinchukin Bank and the Sumitomo Mitsu Banking Corp.
Japan Credit Rating Agency has provided an extensive research report on NYK's loan and compliance with the Sustainability Linked Loan Principles as published by the Loan Market Association.
In short, there are four principles. Firstly, sustainability performance targets must be linked to a borrower's overall corporate social responsibility strategy. Secondly, there must be target-setting and sustainability must be measurable. Thirdly, there must be plans for regular impact reporting to lenders. Fourthly, there must be a review process to check that the loan is aligned with the principles.
In summary, the Japan Credit Rating Agency did confirm that the loan to NYK conforms to the Sustainability Linked Loan Principles.
The credit agency reports, in relation to the first principle – that performance targets are linked to overall corporate social responsibility – that NYK has set CDP's scores as its sustainability performance targets. The company has set themes, goals and further subdivisions in each area. "The establishment of these targets and the measurement of achievement are highly correlated with the preparation of responses to CDP," the credit rating agency stated.
Information on overall sustainability targets, strategies, policies and processes is "widely disclosed" and NYK has both obtained and disclosed compliance with environmentally related standards such as ISO 140001.
The company has also tied several climate change-related governance and strategy initiatives into its disclosures. It has created a management reporting line and governance mechanism that runs to the president of the company and the board of directors.
Risks such as tighter regulation and fuel shifts (among others) and opportunities such as lower-cost green financing and the expansion of demand for low-emission fuels are identified and the estimated costs of assumed risks and opportunities are built into the company's key performance indicators. The company has set targets and budgets for reducing carbon emissions and measures these on a per-unit basis (such as carbon dioxide emissions by tonne/kilometer, scope, country and business segments). NYK also uses a wide range of other metrics such as energy consumption (megawatt hours) by heat source.Once a year, the company will provide a report to CDP and the lender once a year. It will also allow its reports to CDP to be published on the CDP website.
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