Nokia Signs €1.5 Billion Loan Linked To Greenhouse Gas Emissions

Nokia has committed to a new €1.5bn credit facility, which will bind it to a set of targets for reducing greenhouse gas emissions, in a sign of the growing uptake by companies and lenders of green financing tools.

So-called “positive incentive loans” are one of the hottest segments of green finance products. Under such facilities companies’ costs of borrowing vary, depending on whether they hit pre-determined goals linked to environmental, social and governance standards.

Nokia’s new five-year revolving credit facility, announced on Wednesday, is structured so that the margin that the group pays rises or falls depending on its progress in reducing greenhouse gas emissions from Nokia’s own operations, and those attributable to customers’ use of Nokia products.

Sustainable credit facilities are among a number of environmentally-focused financing tools which companies and banks are exploring as they look to burnish their green credentials. Unlike popular green bonds, which are issued with specific environmental projects in mind, such facilities focuses on the company’s overall approach to ESG-related goals.

“You’re not specifying that the use of proceeds has to be for one particular thing, you’re judging a company’s overall performance,” said Clare Dawson, chief executive of the Loan Market Association, Europe’s loan market industry group. “It opens up the market to a wider number of companies,” she added.

With its first ESG-linked loan, Nokia is aiming for a 41 percent reduction in emissions by 2030, compared with its 2014 output, and a 75 percent fall in emissions from products it has sold. The company said the targets are in line with the Paris Agreement’s goal to control the increase in global temperatures.

Nicholas Pfaff, managing director of the International Capital Markets Association, said: “The Nokia transaction illustrates the growing momentum and innovation of sustainable finance in the bank loan market. There is great synergy with what is being achieved in the green bond market.”

Last month Louis Dreyfus, the agricultural commodities group, announced it would include sustainability linked pricing for the first time when it renewed a $750m revolving credit facility. Performance metrics on the facility include emissions, electricity consumption, water use and waste sent to landfill.

“The banking community is increasingly rising to the challenge through novel financing options,” the company’s chief financial officer, Federico Cerisoli, said at the time.

In 2018, Danone issued one of the largest positive incentive loans, at €2bn, with financing costs linked to the French food group’s ESG rating.

The green finance industry has taken steps towards standardising sustainable loans. The London-based Loan Market Association and its international counterparts have launched a set of principles with the aim of providing the market with a “consistent methodology” for assessing deals, and have encourage their take-up in the US.

Data released last month by French bank BNP Paribas suggested 52 percent of institutional investors invest in ESG products in the belief it will improve their long-term returns, while 47 percent do so for brand and reputational issues.―Financial Times