Banking group Nedbank is leveraging its innovative sustainability-linked finance solutions to support South African – and African – companies’ environmental, social and governance (ESG) targets and expand sustainability-linked finance into mainstream markets.

Amid a growing appetite for sustainability-linked finance, which is tied to a borrower’s achievement of ESG targets through pricing incentives, Nedbank is increasingly seeking to identify opportunities and ESG indicators that it can progress in partnership with its clients.

“Nedbank Corporate and Investment Banking’s (CIB’s) approach to ESG innovation entails identifying material areas in the economy that need to be solved from an ESG perspective and which, if solved, would serve to stimulate economic growth, drive shared value and contribute to the reduction of systemic risks that may emanate from factors such as climate change,” says head of Nedbank CIB Sustainable Finance Solutions Business Arvana Singh.

As ESG becomes more of an imperative for firms globally, Nedbank is leveraging finance in an innovative way to be able to set, measure and track the ESG goals on a predetermined timeline.

The embedding of firm sustainability- performance targets into finance structures helps companies to demonstrate their commitment to meeting sustainability-focused goals and also helps to hold companies accountable in meeting their targets by specified milestone dates, and reporting on their performance.

Estimates show that, since its launch in 2017, sustainability-linked financing has become the fastest-growing sustainable finance instrument, with over $809-billion issued in sustainability-linked loans and bonds.

In June this year, Nedbank was one of only three banks worldwide – and the only one in Africa – to be recognised by Global Finance Magazine for its outstanding leadership in ESG innovation. Nedbank was also recognised for its outstanding leadership in green bonds and sustainability-linked bonds in Africa.

“Over the past year, Nedbank has been working to bring about awareness as to what sustainability-linked finance is, and developing the offerings in collaboration with its clients,” Singh tells Engineering News & Mining Weekly, noting that interest has been noted across many industries, including property, finance, retail, mining and logistics.

“We are taking borrowers on a journey with us because these sustainability-linked products need to be structured in collaboration with borrowers in this market,” Singh says.

Singh highlights that, while sustainability-linked instruments offer a lot of flexibility to borrowers, as funds can be used for general corporate purposes, the embedded terms and conditions ensure that forward-looking sustainability key performance indicators are met over the lifetime of the financing. Once a target is met, there could be an incentive for the borrower – or a penalty, if a target is not met.

Driven by a recognition by the banking world, the way mainstream finance is offered must change and barriers must be removed to meet the race to net-zero goals and to advance the Sustainable Development Goals.

“We need a timely and orderly transition. We also need to understand which companies and industries are making the most impact from an ESG point of view and target those as priority,” Singh says, explaining that there are some industries that need to reduce carbon emissions more speedily.

However, sustainability, which can be implemented across all industries with impact, is not just about the climate.

“The climate is a part of that subset; however, ESG refers to many other levers, including socioeconomic factors and advancing diversity and inclusion,” Singh notes.

Increasing Interest

In 2021, Nedbank concluded a R1-billion sustainability-linked revolving credit facility for international logistics company Imperial Logistics.

This represented Imperial’s first sustainability-linked credit facility after approaching Nedbank CIB to consider innovative funding alternatives that align with its focus on ESG.

Meanwhile, JSE-listed real estate investment trust Vukile Property Fund concluded a five-year, R200-million use-of-proceeds green loan with Nedbank in April this year. The proceeds will fund 19 solar energy projects and energy-efficiency initiatives across South Africa.

In May, Nedbank coordinated, arranged and structured a R500-million sustainability-linked credit facility for Old Mutual Property, which focuses on increased consumption of renewable energy, and installation of grey and black water recycling plants at six main shopping centres in its retail property portfolio.

Further, Nedbank CIB, as an appointed sustainability coordinator, assisted in the structuring and arrangement of a equivalent sustainable finance debt package of R10-billion for gold producer Harmony Gold last month.

In 2021, Nedbank also issued a green addiional Tier 1 instrument of R910-million, a unsubordinated green housing bond of R125-million and a Green Residential Development Bond of R1.09-billion which employs blend finance technology.