Sustainable financing at Dutch listed companies: current status

Financing and sustainability are increasingly intertwined. This article provides insights into the current situation among non-financial institutions within the AEX and AMX indices. As of the end of 2022, over half of this group of companies had debt linked to sustainability. In terms of bank debt, ESG-linked facilities dominate, while in capital market instruments, “green bonds” take the lead.

The AEX and AMX companies in the study

The starting point is the 50 companies included in the AEX and AMX indices. We focus on non-financial companies, known as ‘corporates,’ excluding the nine financial institutions. By the end of 2022, 22 out of the remaining 41 companies (54%) had financing linked to sustainability, based on information provided in annual reports. We differentiate between banking financing and capital market instruments.

Banking financing: ESG-linked facilities take the lead

16 companies have Sustainability-Linked Loans (SLL), by far the most common instrument for sustainable bank debt. In an SLL, the credit margin is adjusted based on the performance of predefined sustainability indicators (ESG KPIs), where ESG stands for Environmental, Social, and Governance. Typically, between three and five ESG KPIs are used in a credit agreement.

Looking at the type, ‘environmental’ KPIs are most prevalent (see figure 1 below). CO2 reduction is the most frequent KPI in this category, adopted by nearly all companies. Additionally, there is a focus on improvements in the energy mix, including a greater share of sustainable energy and efficiency enhancements. More sustainable production chains are also evident in KPI’s such as waste reduction and ‘sustainable sourcing.’

Within the ‘social’ category, human rights are high on the agenda, especially for globally operating production companies such as Shell, ArcelorMittal, and JDE Peet’s. Other significant KPIs in the social category include ‘health and safety of employees and customers’ and ‘diversity and inclusivity.’ Fugro aims for a higher percentage of women in senior management: “Fugro has committed to a target for 25% women in senior management positions in 2025.”

Remarkably, only one company has established a KPI specifically focused on ‘governance.’ ArcelorMittal has aligned its SLL with the number of production facilities certified by ResponsibleSteel, with one of the principles in the ResponsibleSteel standard addressing ‘Responsible Leadership’ and its associated requirements for company values and policies.

Capital Market Instruments: Green Bonds Most Common

Capital market instruments refer to debt securities placed with investors. Within this category, bonds listed on a stock exchange are the largest volume category. Private placements, such as European Private Placements (EUPPs) and Schuldschein loans, also fall under the umbrella of capital market instruments. Unlike bonds, these loans are directly placed with the end investor and are usually not traded significantly.

Within capital market instruments, Green Bonds constitute the most significant form of financing concerning sustainability. A Green Bond is a debt security with funds directly allocated to green investments. 

Examples of Green Bonds include ASML and KPN. ASML utilizes the proceeds for the sustainability of its buildings: “Proceeds to be used to buy buildings under BREEAM (Building Research Establishment Environmental Assessment Method).” KPN has identified three areas: “… KPN will finance or refinance projects with a positive environmental impact in three areas: Energy Efficiency (network transformation, including the rollout of fiber and modernization of KPN’s mobile network), Circular Economy (investments that extend product life and reduce waste), and Clean Transportation (reducing emissions by shifting to electric vehicles).”

In addition to Green Bonds, Sustainability-Linked instruments are also present in the capital market, although less common than in the bank loans market. Similar to an SLL, the interest coupon is linked to ESG-KPIs or an external sustainability rating. Examples include Ahold and Arcadis. Ahold issued a bond in 2021 linked to two ESG-KPIs: “SPT 1: Reduction of scope 1 and 2 CO2-e emissions by 29% from a 2018 baseline. SPT 2: Reduction of food waste by 32% from a 2016 baseline.” Arcadis has linked its financing to the improvement of its score from the Sustainalytics rating agency.

In conclusion

Sustainability and ESG are highly relevant topics in most financing projects. With the introduction of the EU Taxonomy and CSRD reporting obligations, the importance is growing for both corporates and financiers. We will continue to monitor developments in sustainable financing, and as soon as the 2023 annual reports become available, we will work on an update.

Simultaneously, the Green Asset Ratio (GAR) at European banks, will play an increasingly prominent role. The GAR reflects the proportion of a bank’s credit portfolio invested in economic activities aligned with the EU taxonomy for sustainable activities, to the extent that the respective sectors are already covered. To learn more, read our article ‘Green Asset Ratio: integrating sustainability into lending practices.‘