A Novel Financial Incentive: Sustainability Linked Loans
Sustainability linked loans are gaining traction worldwide, but remain rare within the wine industry. IWCA Gold Member Yealands Estate Wines of New Zealand has been one of the first wine companies worldwide to receive one.
Sustainability linked loans are an increasingly popular approach by financial institutions to incentivize environmental performance and climate action amongst their customers. The incentives typically take the form of project loans and/or discounted interest rates.
Yealands is now in the second year of its sustainability linked loan. The wine company has long been at the cutting edge of climate action in the wine industry — spearheading the growth of IWCA as one of our first member wineries, and the first wine producer in the world to be Toitū Carbon Zero Certified from its founding. With its sustainability linked loan, Yealands is once again at the forefront, advancing an exciting avenue to incentivize Net Zero efforts in the wine industry.
Linking Financing to Environmental Performance Indicators
“The process has actually been pretty straightforward,” says Yealands’ General Manager Michael Wentworth. The winery was approached by the A.S.B. Bank, a subsidiary of the Commonwealth Bank of Australia, a few years ago with the offer of a financial incentive tied to agreed-upon Sustainable Performance Targets (SPTs).
“Given the expertise in GHG emissions accounting we developed as an IWCA member, and the verified data we were now collecting regularly, it made sense to link the SPTs to our carbon reduction efforts,” explains Michael. Since the company joined IWCA, Yealands has been measuring, auditing, and reporting its GHG emissions footprint annually across Scopes 1, 2, and 3, following IWCA’s rigorous protocols that standardize emissions accounting for wine producers.
The company selected five Sustainable Performance Targets:
Reducing their gross emissions by 5% per annum
Reducing their emission intensity by 5% per annum
Reducing diesel utilization by 5% per annum
Producing over 60% of their energy requirements on site (through renewable sources) by 2025
Phased implementation of the Yealands Biodiversity Plan (planting 1,000,000 native trees)
The loan makes funds available to support the company’s growth plans, with the terms of the loan tied to Yealands’ performance against those environmental targets (as verified by a third party).
An Up-and-Coming Financial Instrument
The first sustainability linked loans emerged around 2017, and have accelerated in recent years with development of the first global Sustainability Linked Loan Principles in 2019 (since regularly updated) and emergence of new collective efforts within the financial sector to address climate change, such as the Glasgow Financial Alliance for Net Zero (GFANZ).
“Sustainability linked loans are a great way for a company to leverage synergies between environmental and financial performance, shares Julien Gervreau, Director of ESG and Sustainability Services at Sensiba LLP and IWCA Board Member. “I’m proud of the leadership position Yealands has taken in advancing this innovative financing mechanism, and in sharing their progress with IWCA members and the global wine industry.”
For Yealands Estate Wines, the sustainability linked loan has been a no-brainer. Shares Michael, “Based on our experience, we cannot recommend it more highly. I strongly urge other wineries to engage their financial institutions to explore some form of climate-related incentive.”
Learn more about Yealands Estate Wines’ sustainability and climate action efforts here.