Imerys has become the first industrial minerals and mining company to include Sustainability-Linked Bonds (SLBs) in its financing strategy. Imerys issued to investors its first SLB for €300 million on May 6, 2021.
SLBs, like traditional bonds, allow large companies to request financing from an investor or investors. While the money does not need to be invested into a specific green or sustainable project, the beneficiary organization (the 'issuer') must have achieved an agreed quantitative sustainability target based on an environmental, social or governance (ESG)-related key performance indicator (KPI) by the time the bond reaches maturity to avoid paying a premium.
Imerys' decision to adopt this new financial instrument shows its commitment to long-term value creation through its sustainability and climate change ambitions.
Leah Wilson, Corporate Social Responsibility Vice-President for Imerys, says: 'Sustainability-Linked Bonds satisfy a growing appetite among investors for sustainable finance as a means to support the transition to a sustainable low-carbon economy. The KPIs we need to achieve must be beyond business as usual, based on science, and measurable and verifiable.
'Our SustainAgilityambition, as well as our KPIs and action plans to achieve them, were thoroughly reviewed by an independent third-party auditor, Cicero Shades of Green, who have issued a Second Party Opinion (SPO). The entire SLB process is defined by a series of voluntary guidelines called the Sustainability-Linked Bond Principles ('SLBP'), which cover structuring features, disclosure and reporting to ensure transparency and credibility. Investors want to know who and what they are investing in genuinely has green or sustainable principles at heart.'
Science-based emissions reduction targets
As part of SustainAgility, Imerys has several CSR objectives, aligned with the United Nations Sustainable Development Goals. Key among these, it has set a target - validated by the Science Based Target initiative (SBTi)- to reduce greenhouse gas emissions by 36% relative to revenue (tCO2/M€) by 2030 from a 2018 base year in alignment with a 2°C trajectory.
For its first Sustainability-Linked Bond, Imerys has also set a specific intermediate performance target to reduce its greenhouse gas emission intensity by 22.9% by the end of 2025.
'We have developed a Sustainability-Linked Bond framework document that explains to investors what we are going to do to reduce direct and indirect greenhouse gas emissions,' continues Leah. 'If we do not achieve our KPIs by the end of the bond's life, we will have to pay a premium to the SLB investors. That is the challenge for any issuer, but we are really serious about our sustainability roadmap.
'We are keen to find innovative ways to embed sustainability in all we do, and integrate our processes, tools and operations and the way we spend money with our CSR targets. Everyone in the Group is committed and involved in achieving our climate change ambitions.'
Sustainability-Linked Bonds: how do they work?
Sustainability-Linked Bonds were first introduced in 2019. They complement green bonds and other sustainable finance instruments.
The 'issuer' (the organisation seeking funds through the bond) does not need to allocate the finance to a specific environmental project, but must commit to achieving a sustainability-related KPI by the end of the bond term.
Over a couple of days, the issuer presents the rationale for the transaction and explains its CSR program, and then interested investors place their orders in an online 'book'.
There is theoretically no limit to how much finance the issuer can request, the amount being rather limited by the appetite of investors for the issuer credit. The price - the interest amount that must be paid back each year - will typically increase with the bond amount. The interest is paid annually. A premium is normally paid if the issuer has not achieved its KPIs
Cédric Boulier, Imerys' Group Treasury Vice-President, says: 'To a certain extent, SLBs are driven by regulation. Certains investors are specialized in Corporate Social Responsibility (CSR) and are obliged to invest in CSR bonds whereas others, more generalist, can decide on their own to invest in CSR bonds. There has been a clear change in mindset, and more and more investors recognise the role they can play in supporting industry to reduce emissions and develop low-carbon solutions.'