Rabobank, Commonwealth Bank and Westpac have partnered with Tassal Group, a leading salmon and seafood, on a A$497 million (US$345 million) sustainability-linked loan. Integrating sustainability progress with loan payments could be a way forward to hold this crucial sector more accountable to its climate impacts.
A sustainability-linked loan (SSL) worth A$497 million has been issued to Tassal Group, Australia’s leading salmon and prawn producer.
The SSL will link some of its interest charge payments to Tassal’s performance on key sustainability targets.
While Tassal’s current sustainability targets are somewhat lacking, the SSL could be the motivating factor needed to hold companies accountable to progress on sustainability.
First sustainability-linked loan in Australia’s aquaculture sector
Rabobank Australia and New Zealand announced its first sustainability-linked loan in Australia’s aquaculture sector, partnering with Commonwealth Bank (ASX:CBA) and Westpac (ASX:WBC) as Joint Sustainability Coordinators of the loan. The lender has global experience coordinating similar loans in the sector, with sustainability-linked loans already provided in Chile and Norway’s aquaculture sector.
Tassal Group is the beneficiary of this new loan in the same week that the company entered a A$1.2 billion ($832 million) takeover agreement from Canada’s Cooke Aquaculture. Based in Tasmania, Tassal Group is now Australia’s leading seafood producer and largest producer of Atlantic salmon.
“While Tassal has been committed to sustainability for many years, this is still a significant step for Tassal and a first for aquaculture in Australia”, commented the group’s managing director and CEO Mark Ryan.
The new sustainability linked loan (SLL) will link some of the interest charges on its loan to sustainability key performance indicators (KPIs) to provide accountability and external validation for the delivery of Tassal’s sustainability ambitions.
Under the SLL, Tassal will be financially incentivised to perform on sustainability areas such as reducing Scope 1, 2 and 3 greenhouse gas (GHG) emissions, increasing feed use efficiency, and improving initiatives required to maintain Aquaculture Stewardship Council (ASC) certification.
“Integrating our sustainability performance with our financing framework is an important step in our responsible business strategy, accelerating our work towards our ambitious sustainability targets”, added Ryan.
International principles for sustainability-linked loans
Tassal’s SSL has also been verified by leading ESG firm, Sustainalytics, who provided the Second Party Opinion that the new loan is aligned with the Asia Pacific Loan Market Association (APLMA) Sustainability-Linked Loan Principles (SLLP), a trade body that together with other associations established a set of best practices for sustainability-linked loans.
These principles have been developed by an experienced working party consisting of representatives from leading financial institutions active in the global syndicated loan markets. The SLLP are completely voluntary, and designed to be applied by market participants on a deal-by-deal basis depending on the nature of the transaction.
The SLLP define a sustainability-linked loan as “any type of loan instruments and/or contingent facilities… which incentivise the borrower’s achievement of ambitious, predetermined sustainability performance objectives”.
The use of proceeds in regards to an SSL is not a determinant in the loan’s categorisation, and in most cases, the loan will be put towards corporate purposes. Instead of earmarking the loan for certain sustainability-driven spending, an SSL aims to improve the borrower’s sustainability profile by aligning loan terms to the borrower’s performance against relevant, predetermined sustainability progress requirements.
Depending on the profile and sustainability goals of the borrower, the targets set under an SSL can vary from increasing energy efficiency, to improving circularity, to protection of biodiversity, to reducing water consumption and GHG emissions. The flexibility of the SSL allows the loan to adapt to a wide variety of sectors to incentivise progress on key areas of sustainability related to the borrower’s sector and past performance.
How to measure sustainability progress under Tassal’s SSL
The KPIs established under the SLL have been set in line with Tassal’s Responsible Business Roadmap. The roadmap includes action on five key areas with corresponding targets to increase the seafood company’s overall sustainability by 2030, as well as measures to increase transparency on how the company will achieve this progress.
While there are many sustainability issues related to the fishing industry, such as impacts on other marine life and disruption of habitats and migratory patterns, freshwater availability as well as plastic and marine waste, the SLL will focus on reducing emissions, increasing feed efficiency and promoting initiatives that can contribute to more sustainable fishing practices.
Achieving net zero by 2050
In regards to emissions, the company aims to be net zero by 2050 and is currently assessing their science-based datasets to establish a concrete roadmap to 2030 on how to achieve emissions reductions.
Two milestones on the road to net zero will be to establish one salmon and one prawn flagship carbon neutral farms as well as spend A$60 million over the next three years on research and development to back initiatives that can reduce the climate impact of their operations.
Currently, the emissions impact of Tassal’s operations vary depending on location, as Tasmania’s energy matrix is mainly fuelled by hydropower, whereas in Queensland and New South Wales it is significantly more fossil fuel dominated. To minimise emissions in this context, Tassal claims to currently be looking into initiatives that either reduce energy use or replace it directly with a lower emissions source.
Looking upstream, the group’s primary feed supplier has a Science Based Targets initiative certified target of reducing their GHG emissions by 58% per unit of value-added product by 2030 with a 2018 baseline. The feed supplier also aims to reduce their Scope 1 and 2 emissions by 2030.
Overall, the average carbon footprint per kilogram of edible meat produced by Tassal is 12kg CO2e for salmon and 11kg CO2e for prawns – around 5kg more compared to chicken, but six times less than beef.
Better feed, less climate impact
Increasing the efficiency of feed is also a key requirement of the SSL. This means reducing feed waste and reducing the quantity of feed used to produce the quantity of fish harvested to use less resources and reduce disruption of marine ecosystems.
This also means sourcing the ingredients for the feed more sustainably. Currently, Tassal feed is primarily made with land animal ingredients, agricultural ingredients, as well as fish oil and fish meal.
All these ingredients also have their own climate and emissions implications and impacts, thus contributing to the group’s overall sustainability performance.
Currently, Tassal is lacking any concrete goals for responsibly sourcing and increasing the efficiency of feed. Under the company’s roadmap, the target for feed is simply “develop a feed strategy that considers the role of feed in biodiversity, climate and nutritional systems”.
Ramping up initiatives to stay ACS certified
The last element of the SLL is also quite vague in terms of KPIs and targets, as improving initiatives required to maintain Aquaculture Stewardship Council (ASC) certification is difficult to quantify and measure progress in terms of real climate impacts.
Tassal is currently the only salmon fishery in Australia that has ASC certification, which is an independent non-profit organisation founded by the World Wide Fund for Nature and Sustainable Trade initiative. To receive ACS certification, a salmon fisher must meet the requirements of 154 compliance points relating to the environmental and social impact of salmon farming.
SLL can back up Tassal’s sustainability goals – and ensure they can stay in business
While there is still room for growth for Tassal to establish more concrete and science-based targets, the SSL will hopefully provide the motivation to accelerate the development of these targets to improve the company’s overall sustainability performance sooner rather than later.
With the loan representing nearly half of the company’s current value, it will certainly provide the means for Tassal to ramp up initiatives that can improve sustainability.
Reducing the climate impacts of Tassal and other marine fishing companies is important not only for the planet, but for the long-term viability of the entire sector. Climate change will threaten fish stocks and marine ecosystems as oceans warms and ocean biodiversity reduces.
Climate change impacts on the ocean are accelerating
In the past thirty years, marine heatwaves have increased by more than 50%, and this warming trend is expected to continue. Ocean temperatures are predicted to increase by 1-4 C by 2100, which can lead to a significant loss of marine habitats and species.
Some studies estimate that due to climate change, areas in the tropics could experience declines of up to 40% in potential seafood catch by 2050.
This means that Tassal has two economic incentives to increase its sustainability: reducing its loan payment premiums under its SSL as well as future-proofing its business.