“The second category is what we refer to as sustainability-linked instruments - where the interest costs are adjusted, based on achieving specified sustainability targets.”
Green bonds were an example of the first category - a type of “use of proceeds instrument” Till said.
As for the second category, an eligible asset for a green bond would be “the decarbonisation project away from coal to renewable energy at our Te Awamutu site,” Till explained.
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Till also provided some background to the Framework, saying approximately half of Fonterra’s debts came from banks and the other half from bond investors.
“A key pillar of our funding strategy is to be able to optimise access to these sources of debt in all market conditions, which ... have been pretty volatile recently.”
Banks and bond investors were increasingly focused on sustainability credentials, with around $3 trillion raised globally in a sustainable debt format last year, Till said.
“So for us to optimise access to these funding sources, we need to provide clarity around both our sustainability strategy and how this will be reflected in our funding arrangements.”
Fonterra had set targets that were already part of its sustainability strategy and ambitions, Till said.
“For some targets, we may also provide annual milestones but the overall criteria for both lenders and investors is that the targets should be material, ambitious and benchmarked against our peers.”
The co-op had been reducing overall debt recently and hadn’t issued any bonds for nearly four years, Till said.
“But we do plan to restart our bond programme this financial year, mainly to refinance maturing bonds and it’s possible that this will include a Green Bond.”
Fonterra’s Sustainability Framework has been developed with joint sustainability coordinators HSBC and Westpac NZ and has been independently verified by ISS Corporate Solutions, confirming alignment with globally agreed sustainable finance principles.
Find out more about Fonterra’s Sustainable Finance Framework here.
