Synlait Milk will reap cheaper interest costs if it hits various environmental, social and governance in a $50 million, four-year loan with ANZ Bank. However, if it falls short, that bill will be higher.

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"This is the first time any New Zealand company has agreed with its bankers to link its sustainability agenda to its cost of funds. This is exciting and innovative," Katharine Tapley, head of sustainable finance solutions for ANZ, told BusinessDesk.

The loan will effectively transfer ANZ's existing $50m committed four-year revolver loan with Synlait into an ESG linked loan and a discount or premium to the base lending margin will be applied, based on its performance around a score of measures. Synlait and ANZ declined to specify details around the discount or premium, citing commercial sensitivity.

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However, Synlait did confirm ANZ's $50m portion of its $100m secured syndicated revolving credit facility has been transferred to the new ESG linked loan.

It became a different tranche within the overall syndicated revolving credit facility and the loan has a maturity date of August 1, 2023, a spokesperson said.

According to Synlait chief financial officer Nigel Greenwood, the company is required to be transparent around ESG and therefore needs to report openly in its annual report and soon to be released sustainability reports.

"This information is used to produce an annual risk report produced by Sustainalytics. The report measures Synlait's risk rating across 11 different measures," he said. Those measures include things like carbon-own operations, land use and biodiversity supply chain, human capital and business ethics.

According to Tapley, this kind of lending is a core part of ANZ's sustainable finance offering, and is the 10th transaction of its kind completed across its Asia-Pacific network in the last nine months with clients in multiple sectors from transport infrastructure, power generation, water and waste treatment to food production.

Tapley said ANZ is focused on working with its customers to transition to a low-carbon and more sustainable economy.

The bank's view is that strong ESG risk and opportunity management is an indicator of strong future performance and "we also believe that we can accelerate this transition by incentivising our customers to out-perform on their ESG agendas."

She said Synlait fits the bill for this kind of funding because of its commitment to continuously improving its ESG performance.

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Synlait got ahead of other milk processors last year when it committed to reducing greenhouse gas emissions by 35 per cent per kilogram of milk solids on-farm and 50 per cent per kg of milk solids off-farm by 2028. The on-farm reduction includes 50 per cent cuts in nitrous oxide, 30 per cent in methane production and 30 per cent in carbon dioxide.

Tapley said she doesn't view the loan as a risk.

"We want Synlait's ESG performance to improve because that means they are producing and providing better milk which is ultimately better for their farmers, their customers and their communities more broadly," she said.

The shares last traded at $9.50, and have increased 5.6 per cent so far this year.