Bank of New Zealand (BNZ) has executed the first ESG-linked derivative in the New Zealand market with retirement village and aged care provider, Metlifecare, and says this innovative type of transaction can provide businesses with another mechanism to achieve ambitious sustainability targets.
BNZ was sole participating bank in the $75m deal which ties the cost of Metlifecare’s interest rate hedging to its performance against ambitious environmental and social targets. The transaction was structured in alignment with the company’s sustainable re-financing last year of $1.25 billion – the largest to date in the New Zealand market*.
Mark Edwards, BNZ Head of Institutional Solutions, says, “It’s fantastic that Metlifecare has the confidence and ambition to tie its lending and hedging to the achievement of ambitious and meaningful sustainability targets.
“The ESG-linked derivative is a way we can work with our customers to incorporate sustainability objectives into every aspect of their financing, further incentivising more sustainable business practices,” he says.
Metlifecare CFO Jonathan Wilde says, “The deal demonstrates our commitment to innovation, transformation and sustainability alongside a like-minded partner in BNZ. As Metlifecare looks to take its place as a transformative industry leader, we’re delighted to be the first business in New Zealand to progress our social and environmental sustainability journey via this new route.”
Under the transaction, BNZ will adjust the pricing on the derivative depending on Metlifecare’s performance against pre-agreed, externally audited targets that form part of a wider Sustainability-Linked Loan announced last year, namely:
- Joining the Science Based Targets Initiative (SBTi) to establish a decarbonisation target in line with the goal of limiting global warming to 1.5°C, and annual reductions in greenhouse gas emissions to achieve that target.
- Building six new aged care communities which achieve a 6 Green Star rating from the New Zealand Green Building Council (the highest level of green building rating achievable in New Zealand) within five years. There are currently only ten 6 Green Star rated buildings in New Zealand, and none are within the retirement village and aged care industry.
- Increasing the number of dementia care beds in its portfolio six-fold within five years, and making all of its portfolio dementia friendly, as accredited by Alzheimers New Zealand.
Mr Edwards says, “There are increasingly more sustainability-linked loans in New Zealand, but this is the first-time pricing on a hedging product has been tied to the achievement of environmental and social targets.
“We believe we can make the greatest difference as a partner, weaving the sustainability aspirations of our customers into tailored financial solutions that support the transition to a low emissions economy and improves outcomes for New Zealanders, our environment and economy.”
BNZ has itself committed to net zero emissions by 2050 and is further embedding Environmental, Social and Governance considerations in its lending decisions. It is also partnering with customers to build transition plans and support businesses to improve efficiency, reduce environmental impacts and improve outcomes for people and communities with sustainability-linked loans. BNZ has a target for $10 billion in sustainable finance by 2025.
*ANZ New Zealand and Westpac NZ were Joint Mandated Lead Arrangers and Bookrunners, and Joint Sustainability Coordinators for Metlifecare in preparing the Sustainability-Linked Loan.
Established in 1984, Metlifecare is a leading New Zealand owner and operator of retirement villages, providing rewarding lifestyles and care to more than 6,000 New Zealanders. Metlifecare currently operates 26 villages located in the North Island. In 2020, Metlifecare was acquired by purpose-driven Swedish investment firm EQT, who recently became the first private markets firm to formalise science based targets through the SBTi to address climate change for both its own and its portfolio investments’ operations.