According to ING, transition bonds and loans will be a growth segment in Asia over the coming years, becoming increasingly mainstream.
Variation of margin under the relevant loan agreement is the most obvious attraction for borrowers, where the margin will often be reduced when the borrower meets pre-determined KPIs. In some cases, where a strong rationale is provided, the ratchet may include a neutral bracket in which no margin adjustment applies.
In April, DBS Hong Kong and Henderson Land announced the successful closing of a four year sustainability-linked loan of HK$2bn and a five year sustainability-linked loan of HK$2.9bn as well as a social loan of HK$100m.
“Sustainability-linked financing offers several significant benefits to Henderson Land,” explains Andrew Fung, Executive Director and Chief Financial Officer. “Firstly, it aligns our financing strategy with our environmental responsibility and commitment towards sustainability. By linking our financing with sustainability objectives, we can promote and reinforce ourselves in reducing carbon emissions and promoting sustainable practices across our operations.”
Sustainable finance also improves the company’s credit standing as a responsible corporate citizen that will be appealing to investors and stakeholders for which sustainability is of the utmost importance.
The loan proceeds will be invested in various sustainability projects within Henderson Land’s portfolio. The major use will be developing and upgrading properties to meet higher environmental standards, such as increasing energy efficiency and renewable energy generation.
“We have also invested in smart building technologies that improve operational efficiency, which aligns with our long-term vision of fostering sustainable urban environments,” says Fung. “Our commitment to sustainability is ongoing and we aim to integrate sustainable finance as a vital part of our growth strategy.”
Matthew Lawson is Group Chief Financial Officer at real estate services and investment company ESR, which in December 2024 secured a five year syndicated sustainability-linked term loan and revolving credit facilities totalling US$2.5bn, bringing its overall sustainability-linked lending close to US$7bn.
He explains that the latest loan is the company’s largest of its kind to date and ranks among the largest sustainability-linked loans in South-East Asia’s real estate sector.
“Sustainability-linked term loans are central to ESR’s financing strategy, enabling us to benefit from lower borrowing costs and flexible use of proceeds, provided we meet clearly defined sustainability targets,” says Lawson.
As ESR progressively increases its installed solar power capacity and improves the sustainability certifications and ratings of its assets, the interest rate will be reduced based on the prespecified performance targets, enabling the group to achieve lower borrowing costs. Proceeds will be used for general corporate purposes, working capital and existing debt refinancing.
“This strategic deployment of funds ensures that we maintain robust financial flexibility while continuing investments in our core operations and sustainability initiatives,” says Lawson. “By aligning our financing structure with our ESG objectives, we are better positioned to support sustainable business growth, enhance operational resilience and deliver long-term value to our stakeholders.”
The strong demand for ESR’s sustainability-linked term loans further reflects the confidence of a diverse group of global lenders in the company’s ESG strategy, adds Lawson.
“This, in turn, broadens our access to capital by appealing to investors and institutions that offer dedicated funds or preferential lending to companies with credible ESG strategies,” he continues. “As we expand into new markets and scale our development pipeline, we anticipate that sustainable finance will remain central to our sustainable growth strategy and we remain open to exploring sustainability-linked loan instruments.”
