By Anthony Casciano, CEO, Siemens Financial Services Americas
Just seven months into 2021, humanity’s use of natural resources exceeded what our planet is capable of generating in one year, making July 29, 2021, the latest Earth Overshoot Day. For the remainder of 2021, we lived in an ecological resource deficit while still accumulating carbon dioxide in the atmosphere.
Considering the consequences of operating in overshoot such as severe weather events, health issues, food scarcity, and more, the green technologies and solutions already available in the market need to be leveraged – and fast. Pressure is on the business sector to transition to sustainable practices, critical to drive long-term value.
Financial institutions like Siemens Financial Services (SFS) – the financing arm of global technology company Siemens – understand the economic challenges that business leaders associate with transitioning to more sustainable operations. Fortunately, financing solutions like sustainability-linked loans make this transition practical for businesses of any size, in any industry, and at any stage in their sustainability journey.
Sustainability-linked loans incentivize the achievement of fixed environmental, social and governance (ESG) related key performance indicators (KPIs). According to Bloomberg, sustainability-linked loans hit a 292% increase by May 2021 compared to all of 2020 in the United States. Their uptake is the highest in Europe and they have far surpassed green loans and bonds globally due to their broader purpose, according to S&P Global.
In June 2021, SFS and other lenders provided Texas-based communications infrastructure company Crown Castle with a sustainability-linked loan when the company’s efforts to be more sustainable required a mutually beneficial finance solution. With the sustainability-linked loan, the credit facility pricing is subject to adjustment based on KPIs including the company’s commitment to renewable energy and conversion to LED lights on certain cell towers over a 5-year period.
In November 2021, SFS and other lenders funded a sustainability-linked loan for the largest operator of Waste-to-Energy plants in the United States: Covanta. A more sustainable alternative to landfilling waste, the company’s facilities safely convert waste into clean, renewable electricity to power one million homes and recycle 600,000 tons of metal annually. In this case, loan pricing is tied to the company’s commitment to sustainably process, recycle, and reuse more of the waste it obtains over a 5-year period. This diverts more waste from landfills, reducing methane emissions and supporting the development of the circular economy.
These sustainability-linked loans incentivize Crown Castle and Covanta’s transitions, enable the use of renewable energy, and align with SFS’ dedication to a responsible portfolio centered around more than money. For financiers, it’s important that we continue to raise transparency on the solutions available – like sustainability-linked loans – and connect business leaders with opportunities to help them realize their ESG potential.
To further raise transparency of opportunities in a growing sustainable financing market, SFS recently held a challenge called “Financing a Sustainable Future” as part of Siemens’ Tech for Sustainability Campaign. The challenge encouraged university students and start-ups to submit ideas to help connect sustainability opportunities with the right financing. A group of professors and students from Stevens Institute of Technology took home the prize for their solution to create an artificial intelligence-driven platform that bridges sustainability-related ideas and projects to funding sources and financing products, such as sustainability-linked loans.
The goal is to continue delaying Earth Overshoot Day in 2022 and beyond until it’s no longer on the calendar. Through big ideas and custom financing solutions, the business sector has a large influence on its achievement.