A big four bank has inked the first sustainability linked loan (SLL) for Australia's agriculture industry.
Commonwealth Bank has signed an SLL with premium Queensland producer Stockyard Group for an undisclosed sum. The three-year loan has set targets for the family-owned business covering emissions reduction, animal welfare and people wellbeing.
Stockyard's sustainability strategy is aligned to beef industry's priorities such as the Australian Beef Sustainability Framework and the Carbon Neutral 2030 strategy.
The deal ties the facility pricing to five metrics, grouped into three sustainability performance targets, including reducing Scope 1 and 2 greenhouse gas emissions; improved animal welfare outcomes; and workplace health and safety innovations.
"We're a third generation family business and our family council had very strong views about sustainability outcomes as we transition the business to future generations," said Stockyard managing director Lockie Hart. "Commonwealth Bank approached us, introduced us to sustainability linked loans and how the bank can support us with our sustainability targets."
Stockyard is using the Australian Beef Sustainability Framework as part of the process to shape those targets.
"The framework is giving us some structure to how we approach and what pathways we take to achieving the emissions goals and sustainability goals, but the metrics that have been decided upon between ourselves and Commonwealth Bank are through negotiation between the two parties," Hart said. "There are very robust standards around SLLs, and we've got EY to undertake an audit of the program and ensure the targets we've set within those three areas - emissions reductions, animal wellbeing improvements and workplace safety improvements, are all robust outcomes, but more importantly are ambitious in their stretching targets."
If Stockyard achieve the targets of the SLL, they receive a discount on their interest rate. On the flip side, if Stockyard does not achieve the interest rate, Hart noted that Commonwealth Bank committed to reallocating the higher interest rate to industry-based research projects to increase sustainability in the red meat industry.
"The discounted interest rate results in reduction in funding for the loans, and we can then allocate those savings in our cost of financing into sustainable projects internally," Hart noted. "It could also go to capital expenditure, or further research projects to ensure that we meet those targets in the future. If we miss those targets or materially underperform those targets, our interest rates go up and we pay a penalty to the bank."
Commonwealth Bank group executive for business banking Mike Vacy-Lyle, said this landmark transaction demonstrates the bank's ability to develop innovative finance solutions to support the sustainability of the industry through improved ESG outcomes.
"We know many farmers across the country are already adopting best practice sustainability and environmental stewardship, and we want to partner with agribusinesses to help them innovate and accelerate transition plans," Vacy-Lyle said.
Australia's beef industry accounts for almost a quarter of the country's total agriculture production. Stockyard is an industry leader in emissions reduction and animal welfare. Stockyard's primary asset is its approximately 20,000 head feedlot located in the highly productive Darling Downs region of south-east Queensland.
Founded in 1958, Stockyard is recognised as an integrated pastoral, lot feeding and branded beef business, exporting a suite of premium grain-fed Wagyu and Angus beef product to over 20 international markets as well as supporting Australian markets.
Image courtesy of Commonwealth Bank