Suzano Sustainability-Linked Bond

1. Introduction

Suzano is a Brazilian company that is a global reference in the development of products made from renewable planted eucalyptus forests and one of the largest vertically integrated producers of eucalyptus pulp and paper in Latin America. With ten mills and the joint operation Veracel, Suzano has annual installed capacity of 10.9 million tons of market pulp and 1.4 million tons of paper. The company adopts the highest standards of corporate governance on the exchanges where its stock is listed, namely the Novo Mercado segment of B3 in Brazil and ADR level II program on the NYSE in the United States.

In September 2020, Suzano issued the first 10-year Sustainability-Linked Bond (SLB) in the Americas and Emerging Markets, and the second corporate in the world. It was also the first issuance to follow the Sustainability-Linked Bond Principles (SLBP) published in June 2020 and the first issuer to seek a Second Party Opinion, provided by ISS-ESG.

The issuance totaled US$ 750 million. In November, the company reopened the offering, selling an additional US$ 500 million with yield of 3.100%, the lowest for a Brazilian Corporation in a 10-year operation.

2. Suzano’s Sustainability-Linked Bond

By planting, growing, and cultivating eucalyptus trees as well as conserving and protecting native Brazilian forests, Suzano is in the business of natural capital. As such, environmental considerations are an integral part of the business model. Suzano is committed to the Sustainable Development Goals (SDGs) as it understands that private sector engagement is essential to accelerate the fulfillment of the 2030 Agenda. Suzano’s issuance and chosen KPI contribute to the SDG 13 – Climate Action as well as Suzano’s Long-term Goals.

Suzano’s Sustainability-Linked Bond has a Sustainability Performance Target (SPT) that will result in a one-time coupon step-up of 25bps if the company’s performance does not achieve GHG Emissions Intensity Reduction equal to or less than 0.190 tCO2e/ton produced as measured by the average of years ended 2024 and 2025. The trigger will be achieving the GHG emissions intensity target above. This is equivalent to an estimated reduction of 10.9% from the 2015 baseline.

Both issuances were well received by investors resulting in excellent numbers, 8x oversubscribed, over 100 investors accessed on roadshow and 57% of the effective investors were ESG focused. The sustainability credentials generated an estimated benefit of 15 bps in the yield compared to other non SLB bond. All in all, resulting in a lower yield for the company, sustainable income asset for investors and a cleaner world for all of us.

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Submitted by Mikhael Henriques, Treasury Analyst, Suzano

Image: Boyd Surachet/Shutterstock

STAKEHOLDERS:

Suzano

Mercon Coffee Group

In 2019 Mercon, a global leading and purpose-led integrated coffee supplier with an annual volume of more than 4.5 million coffee bags per year, closed a US$450 million Sustainability-Linked Credit Facility. This has been the first in the commodity sector in the U.S. and the first coffee-only sustainability facility globally. Rabobank acts as the Sustainability Structuring Agent and International Finance Corporation and ING Capital LLC as the Sustainability Coordinators.

Mercon’s purpose to build a better coffee world is the very center of its long-term strategy. The Company has expanded its sourcing channels to all its integrated Origins by developing its own sustainability production program called LIFT. The LIFT program, which has first been implemented in Nicaragua and then rolled out to Guatemala, Honduras, Brazil, and Vietnam, is an integrated and impact-driven service delivery platform including training and technical assistance, farm management, climate-smart agriculture, best socio-environmental practices, certifications, renovation, access to credit, financial risk management and community development. The LIFT impact is measured by an Index covering the economic, social, and environmental performances at the farm level.

The LIFT program is currently reaching more than 3,000 farmers globally, producing more than 300k bags of sustainable coffee. In 2019, Mercon has not only been able to continue to expand the LIFT program to reach more farmers but also to improve the LIFT Index from 50/100 to an average of 72/100.

Based on the achievement of third-party verified LIFT targets, a discount has been applied to the pricing on the Facility to boost the growth of the LIFT program and to support the work done in rural coffee communities by Seeds for Progress Foundation – non-profit created by Mercon in 2013 aimed at improving access to high-quality education in the rural coffee communities of Nicaragua and Guatemala. Mercon estimates that the discount will generate US$250k to improve the life of coffee farmers and coffee communities.

“As a Group, we are extremely proud to be a part of this ground-breaking facility which allows us to reaffirm our commitment to source and deliver the right quality of coffee and to do so while adding value to everyone in the supply chain,” said Oscar Sevilla, Chief Executive Officer, Mercon Coffee Corporation.

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*AMERRA Capital Management is a multi-strategy asset manager exclusively focused on upstream and midstream food & agribusiness operating companies in the Americas and Europe. Mercon Coffee Group is a portfolio company within AMERRA Agri PE Fund, LP.

Submitted by Santiago Cortes, ESG Manager, AMERRA Capital Management

STAKEHOLDERS:

Mercon Coffee Group and AMERRA Capital Management*

BNDES ABC Agri Credit

In 2010, the Brazilian Government developed the ABC Plan, the Federal Government’s Strategy for Low-Carbon Agriculture Plan, which aims to shift its land use policy towards sustainable agriculture by using market-based incentives to drive the transition. The ABC Plan aims to: restore 15 million hectares of degraded pastureland; develop 5 million hectares of integrated crops, forest, agroforestry and livestock; expand no-till agriculture by 8 million hectares; replace nitrogen fertiliser with Biological Nitrogen Fixation across 5.5 million hectares; reforest 3 million hectares; and implement biogas and compost infrastructure to handle 4.4 million m of animal waste.

BNDES, the Brazilian National Bank for Economic and Social Development, provides preferential credit rates for low-carbon agricultural investments in livestock, forestry and crops,¹²⁸ compared to market rates set by the Brazilian Central Bank.¹²⁹ In 2016/2017 alone, the project aims to provide R$1.1 billion in low-interest rate loans to producers who provide detailed plans for the implementation of at least one sustainable agricultural system. 73percent of the credit is financed by BNDES, with the rest comes from other sources.¹³⁰ BNDES channels its resources through accredited banks (e.g. Rabobank and Banco do Brasil), effectively subsidising the below-the-market interest rate, covering the difference to match market interest rates. The ABC programme is the first of its kind to incentivise low-carbon emission practices through attractive credit lines.

According to Brazil’s Ministry of Agriculture, Livestock and Food Supply, since 2010, the ABC Plan has invested more than R$4.6 billion through the ABC Plan’s funding line.¹³¹

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128 Carauta, Marcelo, Evgeny Latynskiy, Johannes Mössinger, Juliana Gil, Affonso Libera, Anna Hampf, Leonardo Monteiro, Matthias Siebold, and Thomas Berger. 2018. ‘Can Preferential Credit Programs Speed up the Adoption of Low-Carbon Agricultural Systems in Mato Grosso, Brazil? Results from Bioeconomic Microsimulation’. Regional Environmental Change 18 (1): 117–28. https://doi.org/10.1007/s10113-017-1104-x.

129 Carauta, Marcelo, Evgeny Latynskiy, Johannes Mössinger, Juliana Gil, Affonso Libera, Anna Hampf, Leonardo Monteiro, Matthias Siebold, and Thomas Berger. 2018. ‘Can Preferential Credit Programs Speed up the Adoption of Low-Carbon Agricultural Systems in Mato Grosso, Brazil? Results from Bioeconomic Microsimulation’. Regional Environmental Change 18 (1): 117–28. https://doi.org/10.1007/s10113-017-1104-x.

130 Juliano Assunção, and Priscila Souza. 2018. ‘The Fragmented Rules Of Brazilian Rural Credit How Policy Design Creates Artificial Obstacles In Credit Access And Loan Conditions For Rural Producers’. Rio de Janeiro: Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2018/08/CPI_Brief_Fragmented_Rules_Brazilian_Rural_Credit-1.pdf.

131 ‘Investment Guide to Brazil 2019’. n.d. ApexBrazil, Ministry of Foreign Affairs (Brazil), Patria Amada Brazil. https://sistemas.mre.gov.br/kitweb/datafiles/Miami/en-us/file/Investment_Guide_to_Brazil_2019percent20(2).pdf.

STAKEHOLDERS:

BNDES

COFCO Sustainability-Linked Loan

In 2019, COFCO International, the trading division of China’s largest agriculture firm, managing 100 million tonnes of commodities, signed a $2.1 billion sustainability-linked loan as its core financing facility, from a consortium of 20 banks. To date, it is the largest credit package to be given to a commodity trader. Furthermore, it is the first loan to be linked to sustainability performances in mainland China.¹³² It demonstrates COFCO’s commitment to sustainable commodity supply chains and transparency.

COFCO’s loan offers lower interest rates dependent on year-on-year improvements of ESG performance.¹³³ The overall loan has three tranches, with a one-year revolving credit facility and a three-year term loan. Interest rates are tied to COFCO’s ESG rating from Sustainalytics and specific KPIs – such as around the traceability of soft commodities – with a focus on soy from Brazil. BBVA, ING and Rabobank are acting as the lead sustainability coordinators.

COFCO estimates that it will save $1 million a year due to a lower interest rate, and plans to use those savings to further fund its sustainability agenda.¹³⁴

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132 ‘Cofco Arm Secures $2.1bn Loan Tied to Sustainability Performance’. 2019. Financial Times. 30 September 2019. https://www.ft.com/content/930bbf56-a7db-11e9-b6ee-3cdf3174eb89.

133 ‘COFCO International Links Sustainability Performance to New USD 2.1 Billion Credit Facility’. 2019. COFCO International. 16 July 2019. https://www.cofcointernational.com/newsroom/cofco-international-links-sustainability-performance-to-new-usd-21-billion-credit-facility/.

134 ‘Cofco Arm Secures $2.1bn Loan Tied to Sustainability Performance’. 2019. Financial Times. 30 September 2019. https://www.ft.com/content/930bbf56-a7db-11e9-b6ee-3cdf3174eb89.

STAKEHOLDERS:

BBVA; ING; Rabobank; Sustainalytics

FIRA Green Bonds

FIRA, Mexico’s development bank has issued two green bonds to finance sustainable agriculture and forestry: the first one in 2018, for MXN 2.5 billion ($130 million) for protected agriculture. The funds were used to finance greenhouse projects with sustainable irrigation systems using precision sprinklers.¹³⁵

The labelling of the bond as “green ” was driven by the cooperation between the Inter-American Development Bank (IDB), FIRA and the Climate Bonds Initiative (CBI), a not-for-profit organisation that has developed a voluntary certification scheme for green bonds. IDB supported FIRA to conduct a study on sustainable protected agriculture in Mexico, which fed into the certification criteria for protected agriculture developed by the Climate Bonds Initiative for the bond. Sustainalytics acted as external reviewer for the certification of the bond.¹³⁶

The second bond was issued in November 2019 – for the same amount but with a longer tenor (four and a half years rather than three) and with proceeds allocated to sustainable forestry and solar projects as well as protected agriculture.¹³⁷

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135 ‘FIRA Receives First Climate Bonds Certification to Issue Green Bonds for Protected Agriculture Projects in Mexico’. 2019. Climate Bonds Initiative. 22 May 2019. https://www.climatebonds.net/resources/press-releases/2019/05/fira-receives-first-climate-bonds-certification-issue-green-bonds.

136 ‘FIRA Receives First Climate Bonds Certification to Issue Green Bonds for Protected Agriculture Projects in Mexico’. 2019. Climate Bonds Initiative. 22 May 2019. https://www.climatebonds.net/resources/press-releases/2019/05/fira-receives-first-climate-bonds-certification-issue-green-bonds.

137 ‘FIRA Receives First Climate Bonds Certification to Issue Green Bonds for Protected Agriculture Projects in Mexico’. 2019. Climate Bonds Initiative. 22 May 2019. https://www.climatebonds.net/resources/press-releases/2019/05/fira-receives-first-climate-bonds-certification-issue-green-bonds.

STAKEHOLDERS:

Climate Bonds Initiative; IDB; Sustainalytics; Los Fideicomisos Instituidos en Relación con la Agricultura

Olam's Sustainability-Linked Loan

Olam is an agri-business operating throughout the agricultural value chain – including the production, processing and trading of food products – across 66 countries. In May 2018, Olam secured Asia’s first three-year sustainability-linked revolving credit facility (RCF), amounting to $500 million.

Olam’s sustainability-linked credit facility is provided by a consortium of 15 banks with loans conditional on the achievement of sustainability targets. Olam has agreed to meet 50 different environmental, social and governance criteria, which will be assessed by Sustainalytics. On a yearly basis, the agreed-upon standards will be assessed against three overarching KPIs (prosperous farmers and food systems, thriving communities, regeneration of the living world), and if achieved, the interest rates of the loan will be reduced based on their performance.¹³⁸ Other key stakeholders for the facility include ING Bank as the sustainability coordinator, and BNP Paribas as the agent.¹³⁹

A second sustainability-linked loan was taken out by Olam in 2019, amounting to $525 million. Similar to the first one, the facility has three tranches, including a one-year $315 million RCF, a two-year $105 million RCF and a three-year $105 million RCF.¹⁴⁰

A third sustainability-linked loan, amounting to $250 million was agreed in September 2020.¹⁴¹

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138 ‘Olam International Secures Asia’s First Sustainability-Linked Club Loan Facility of US$500.0 Million’. 2018. Olam. 26 March 2018. /content/olamgroup/en/home-page/news/all-news/press-release/asias-first-sustainability-linked-club-loan-facility-us500million.

139 ‘Olam International Secures Asia’s First Sustainability-Linked Club Loan Facility of US$500.0 Million’. 2018. Olam. 26 March 2018. /content/olamgroup/en/home-page/news/all-news/press-release/asias-first-sustainability-linked-club-loan-facility-us500million.

140 Shiao, Vivien. 2019. ‘Olam Secures US$525 Million Sustainability-Linked Loan’. The Business Times (blog). 10 September 2019. https://www.businesstimes.com.sg/companies-markets/olam-secures-us525-million-sustainability-linked-loan.

141 ‘Olam Secures US Dollar 250 Million Sustainability-Linked Loan’. n.d. Olam. Accessed 18 September 2020. /content/olamgroup/en/home-page/news/all-news/press-release/olam-secures-us-dollar-250-million-sustainability-linked-loan.

STAKEHOLDERS:

Sustainalytics; ING Bank; BNP Paribas; Rabobank; ANZ; DBS; Standard Chartered Bank

Seychelles Blue Bonds

In 2018, the Republic of Seychelles launched the world’s first sovereign blue bond to finance sustainable fishing practices and marine protection.

The bond benefits from two credit enhancement instruments: a partial guarantee by the World Bank (IBRD) of $5 million, and a concessional loan of $5 million from GEF, which partially subsidises the bond’s interest payments from 5.5 to 2.8 percent. The bond was privately placed with three private investors: Nuveen, Prudential and Calvert Impact Capital.¹⁴² The majority of the transaction costs for the bond were covered by the Rockefeller Foundation.¹⁴³ Standard Chartered Bank and Bank of New York Mellon assisted in the process and payments.¹⁴⁴

The proceeds will finance the sustainable transition of small-scale fisheries (the Mahe Plateau Demersal Fisheries Management), including the rebuilding of fish stocks, harvest control and complement marine projects. Furthermore, it provides additional funding for the continued development of Seychelles EEZ marine spatial plan, the World Bank SWIOFish 3 project, and the allocation of 30 percent of marine protected areas for Debt Swap for Conservation and Climate Adaptation.¹⁴⁵ Being the first of its kind, the Seychelles’ Blue Bond can serve as a replicable model for other Small Island Developing States, that are seeking to increase the adaptability and resilience of local communities, and protect marine ecosystems.

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142 ‘Sovereign Blue Bond Issuance: Frequently Asked Questions’. 2018. World Bank. 29 October 2018. https://doi.org/10/29/sovereign-blue-bond-issuance-frequently-asked-questions.

143 ‘Seychelles: Introducing the World’s First Sovereign Blue Bond – Mobilizing Private Sector Investment to Support the Ocean Economy’. 2019. The World Bank. http://pubdocs.worldbank.org/en/242151559930961454/Case-study-Blue-Bond-Seychelles-final-6-7-2019.pdf.

144 ‘Seychelles: Introducing the World’s First Sovereign Blue Bond – Mobilizing Private Sector Investment to Support the Ocean Economy’. 2019. The World Bank. http://pubdocs.worldbank.org/en/242151559930961454/Case-study-Blue-Bond-Seychelles-final-6-7-2019.pdf.

145 ‘Innovative Ocean Financing: Seychelles Blue Bonds’. n.d. Food and Agriculture Organization of the United Nations. http://www.fao.org/blogs/blue-growth-blog/innovative-ocean-financing-seychelles-blue-bonds/en/.

STAKEHOLDERS:

Global Environment Facility (GEF), World Bank; Nuveen; Prudential; Calvert Impact Capital; Standard Chartered Bank; Bank of New York Mellon

Seychelles Debt Swap

Small Island Developing States are burdened with sovereign debt, while also heavily exposed to the risks posed by climate change, such as hurricanes and rising sea-levels. In 2018, the Republic of Seychelles agreed to protect a third of its marine and coastal area in exchange for a reduction of its sovereign debt. This first-ever climate adaptation debt restructuring was brokered between Paris Club creditors and the Seychelles Government, and converted $21 million of Seychelles’ debt into investments in coastal protection and adaptation.

The Nature Conservancy’s NatureVest raised a $15.2 million impact loan and $5 million of grant funding from Oceans 5 (a group of philanthropists focused on marine conservation and health) to enable the government to purchase $21.6 million of debt (at a rate of 93.5 cents on the dollar). The transaction was carried out by the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT) – a newly established entity to manage the flow of funds.¹⁴⁶ The government will then issue two promissory notes to SeyCCAT: the first for $15.2 million at 3 percent over 10 years to repay the NatureVest loan, and the second one for $6.4 million to fund the programme of conservation activities and capitalise future endowments.

The financing will help the implementation of a Marine Spatial Plan for the Seychelles Exclusive Economic Zone, an area 3,000 times its landmass. Furthermore, the deal will conserve 400,000 km of its marine area within the next five years. The Nature Conservancy has been exploring similar deals for other countries that have significant debt levels and areas of natural environment to protect.¹⁴⁷

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146 ‘Seychelles Debt Restructuring for Marine Conservation and Climate Adaptation’. 2016. Prezi.Com. 10 June 2016. https://prezi.com/iittvb4gxoso/seychelles-debt-restructuring-for-marine-conservation-and-climate-adaptation/.

147 ‘Ocean Protection’. n.d. The Nature Conservancy – NatureVest. Accessed 2 October 2019. https://www.nature.org/en-us/about-us/who-we-are/how-we-work/finance-investing/naturevest/ocean-protection/.

STAKEHOLDERS:

NatureVest; Paris Club; Seychelles Government; SeyCCAT