Photo of Nicolas Vaniet, Head Financing & Treasury Front Office.
Nicolas Vaniet
Head Financing & Treasury Front Office
Holcim (formerly LafargeHolcim) is the world’s global leader in building solutions. Its 70,000 employees are committed to improving quality of life across more than 70 marketsthrough its four business segments: cement, ready-mix concrete, aggregates and solutions and products. The group has pledged to help reinvent how the world builds to shape a world that is greener, smarter and that works for all; a world that is low-carbon and circular for a net zero future and one that is driven by innovation and digitalisation, making more with less.
Holcim has worked to integrate ESG into the commercial paper market
The challenge
Holcim is striving to become the global leader in innovative and sustainable building solutions, shaping a world that works for people and the planet. The company designed a holistic sustainable financing and liquidity management strategy covering communication with bond holders and rating agencies, cash investments, long-term and finally short-term funding. Regarding the latter, only few precedents around ESG integration in the commercial paper market exist and the market, whereby large corporates issue securities to finance short-term obligations, is renowned for its fast-moving nature.
The solution
Holcim has developed an ESG structure that takes into account the short-dated nature of the commercial paper market alongside investor requirements and ambitions in the sector. The company launched an ESG commercial paper programme in August 2020, enabling it to leverage its strong ESG ratings from Sustainalytics, the ESG research firm, to issue ESG Notes and Conventional Notes.
Best practice and innovation
As long as Sustainalytics ranks Holcim within the 25th percentile of its sector ranking (Construction Materials by Industry Group) the company can issue notes which are designated as ESG Notes. In May 2020, Sustainalytics awarded the company a low ESG risk rating and a relative performance ranking of first out of 101 in its sector ranking. If Holcim fails to meet its sector ranking it can continue to issue notes under the programme, but they can’t be designated ESG Notes.
Under the programme, Holcim agrees to maintain an ESG Risk Rating and Sector Ranking from Sustainalytics and publish its Risk Rating Summary Report on its website as soon as possible.
The establishment of this programme provides a successful example of how companies can take a holistic approach to sustainable financing by embedding ESG characteristics across their debt liabilities. It is also promising to see how a company in a traditionally ‘hard-to-abate’ sector such as construction and cement continues to be at the forefront of sustainable finance innovation.
Key benefits
- Given the short-dated nature of the commercial paper market, the public release obligation of falling below the ESG commitment was seen as the most appropriate form of penalty.
- The reputational incentive to remain within the top 25th percentile of the Construction Materials by Industry Group was seen as the most material way to showcase the company’s commitment to sustainability compared to other modification of the liability structural characteristics such as early repayment or the coupon step-ups/premium redemptions seen in the sustainability-linked bond market.
- The solution has been well accepted by the market and investors demonstrate increased demand for ESG Notes over conventional Notes.
“This programme was the first ESG rating-linked commercial paper programme set up by a corporate and has been a key milestone in incorporating ESG features in the European commercial paper market,” says Nicolas Vaniet, Head Financing & Treasury Front Office.
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