Building a Portfolio

ESG Performance and Banking Successfully Combined for the First Time

case study trends
July 17, 2018

ESG performance and banking are rarely mentioned in the same breath. But an innovative loan agreement between Group Danone, the French dairy company and maker of Dannon yogurt, and 12 global banks ties the company’s environmental, social, and governance performance to the rate it’s paying on its syndicated debt.

Danone’s Agreement

Danone announced on February 16, 2018, that its syndicated credit facility for 2 billion euros (about $2.5 billion USD) had been amended to include “global environmental and social criteria directly impacting, upwards or downwards, the margin payable to its banks over the entire duration of the facility.” In other words, Danone will have a lower cost of capital if it meets high ESG standards.

A key part of the agreement was that the company’s ESG performance and banking would not be dependent on its own reporting, but would be monitored and verified two ways. First, Danone’s ESG performance will be scored by two different rating agencies—Sustainalytics and Vigeo Eiris, research firms that provide data on companies’ ESG performance. The other metric is the percentage of Danone’s consolidated sales covered by so-called “B Corp certifications.”

B Corp certification is overseen by B Lab, a nonprofit that’s attempting to do for corporations what Fair Trade has accomplished for growers of coffee and cocoa. B Corporations are for-profit companies that B Lab certifies as having met certain social and environmental performance measures. They must also meet high standards of public transparency and legal accountability.

“We are thrilled to be a pioneer in combining both traditional financial and ESG criteria as drivers of long-term sustainable performance, and for our banks to support this vision,” said Danone’s chief financial officer, Cécile Cabanis. “This move is consistent with Danone’s ambition to become a B Corp and with our long term commitment to create sustainable value for our shareholders and all our stakeholders.”

A Rising Tide

The move by Danone is not all that surprising—the company has a long history of focusing on ESG issues. In 1972, then-CEO Antoine Riboud noted in a speech that profit growth should not be an end in itself. “Corporate responsibility does not end at the factory gate or the office door,” he said. “The jobs a business creates are central to the lives of employees, and the energy and raw materials we consume change the shape of our planet.”

What many impact investors find exciting is that some big banks—which can be among the most conservative institutions—have decided to go along with using ESG criteria in their business.

“This financing solution is truly innovative because our facility links Danone’s ESG performance to the pricing, offering a discount when outperforming on their two sustainable goals, or even a premium when underperforming,” said Yann Gérardin, head of corporate and institutional banking at French financial giant BNP Paribas.

Gérardin then asked rhetorically whether a transaction that “demonstrates that delivering on sustainability will ultimately drive economic performance.” His answer: “Yes, this is the future of banking.”

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