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ETG closes first sustainability-linked credit facility

Singapore-based Agrocorp International has signed its first US$50mn committed sustainable borrowing base facility with Dutch banks FMO and Rabobank.

The facility is split into two equal tranches with FMO covering prepayments and inventory and Rabobank financing receivables. Rabobank is also taking on the role of facility agent.

Proceeds will be used in large part to enable Agrocorp to implement a more sustainable food supply chain in emerging countries, with the company working with environmental and social consulting firm Earth Systems to set and monitor sustainability targets and reporting requirements.

Vishal Vijay, Agrocorp’s head of business development, tells GTR that this facility will contain sustainability covenants, essentially making it so that failure to meet these objectives will be treated as a default on the loan.

“These sustainability covenants work similarly to financial covenants. During each annual review of the facility, these covenants will be assessed, just the same as financial covenants are assessed, and then a renewal decision will be taken,” says Vijay. “We obviously don’t expect to default, but it is a very serious matter.”

This is a departure from the most common model of sustainability-linked financing in the market at the moment, whereby a company or its suppliers are rated against external sustainability guidelines, getting a reduced rate on financing if they comply and a reversion to market rate for the financing type if they don’t. Vijay says that the sustainability aspect is “priced in” to the deal, adding that Agrocorp is getting a “pretty good rate” – albeit not one he was able to disclose.

He explains that for the first year, the objectives will be “relatively easy” to achieve. “Both Rabobank and FMO understand that this is something that is quite new for us,” he says, adding that the initial targets will include hiring a head of sustainability, setting up a board subcommittee to look after environmental objectives, instilling a level of environmental fact-checking in Agrocorp’s KYC process, and publishing a yearly sustainability report.

“These objectives will then go progressively deeper into our supply chain over the course of the five years,” says Vijay. “We will go in see what kind of training we can impart to smallholder farmers in countries such as Myanmar and in parts of West Africa, helping them to be more environmentally friendly in their farming practices as well as getting higher yields.”