UK-based grocery company Tesco announced the establishment of a £2.5 billion revolving credit facility, with interest linked to the achievement environmental targets. The facility replaces the company’s existing £3 billion committed facilities.
According to the terms of the facility, Tesco will benefit from lower interest rates if the company delivers environmental targets, aligned with three sustainability-linked key performance indicators (KPIs) related to emissions, renewable energy and food waste. Specifically, the KPIs measure Tesco’s percent of reduction of Scope 1 and Scope 2 CO2e emissions percent of renewable electricity sourced from on-site generation or from the grid under Power Purchase Agreements, and percent of food surplus safe for human consumption redistributed to humans or animals within UK operations.
Alan Stewart, CFO of Tesco said:
“This financial instrument is a positive step in further integrating sustainability into all aspects of our business. As a founding member of the A4S CFO Network and more recently the UN Chief Financial Officers Taskforce, linking our ambitious targets with our core financing activities has always been a goal. This further demonstrates the strength of our commitment and reinforces our belief that financing activities can help us achieve our sustainability commitments. As a large retailer, we can play a key role in decarbonising the wider economy through engaging our suppliers and customers in the transition.”
BNP Paribas acted as sole Co-ordinator and Sustainability Co-ordinator for the facility. According to Tesco, the three-year facility is the first day one Risk Free Rate (RFR) syndicated loan facility in the UK, with multiple interest periods linked from day one to the Sterling Overnight Index Average (“SONIA”) and to the Secured Overnight Financing Rate (“SOFR”) for GBP and USD respectively. The Facility continues to use EURIBOR for EUR loans with NatWest acting as Risk Free Rate Manager and Facility Agent.
Anne Marie Verstraeten, UK Country Head, BNP Paribas, said:
“The ambitious science based targets embedded into Tesco’s sustainability linked loan demonstrate how sustainable finance can be an accelerator for the progressive decarbonisation of a business. For UK corporates to shift to a net zero pathway requires collaboration and innovation across multiple sectors – including from banks such as BNP Paribas – and through mobilising our expertise across industries, we can transition together towards a low carbon economy.”
Andrew Blincoe, Managing Director and Head of Large Corporates & Institutions, Natwest, said:
“We have a long-term relationship with Tesco, with many shared values, and are delighted to support with this milestone RFR transaction as Risk Free Rate Manager and Facility Agent, and support them with their longer term funding requirements. This transaction is an important one for the syndicated loan market as we transition to a risk free rate environment. As the transaction also contains ESG principles, it is very much aligned with our purpose-led approach to sustainable finance.”