Contact Energy links loans to sustainable performance

Artist's impression of the proposed new Tauhara geothermal power station.

Energy retailer Contact Energy now has all its loans in a sustainable finance portfolio, having converted its remaining $305 million in bank facilities to Sustainably Linked Loans (SLLs).

The conversion takes its current ANZ ($65m), BNZ ($50m), Commonwealth Bank of Australia ($60m), China Construction Bank ($60m), and Mizuho ($70m) facilities and converts them to an SLL with each bank.

These will be governed by the same framework as Contact's existing SLLs with Westpac ($50m) and Mitsubishi UFJ ($75m), taking the total value of its SLL lending to $430m.

Contact corporate treasurer Will Thomson said all the company's SLLs are tied to its performance in environmental, social, and governance targets as measured by the independent rating agency RobecoSAM.

Contact will receive lower funding costs across its bank facilities, provided it meets the predetermined ESG targets. If it does not achieve the targets, and ESG performance falls below a predetermined threshold, the loans will be charged at higher interest rates.

Progress on the company's ESG performance will be reported as part of the annual results presentation on August 16.

"Each of our seven SLLs have the same framework, meaning they get the same discount/lower interest by being an SLL, but are on different interest rates to begin with due to the different duration of the individual loan," Thomson said. "We haven't publicly disclosed the discount or penalty, but it will make a material difference to Contact's funding costs."

Thomson said each loan was on different terms, with the original ones with Westpac and MUFG four-year terms each, and the more recently five converted loans ranging from three to five years.

Contact's sustainable finance initiatives linked the company's capital with its sustainability ambitions, such as its verified science-based target of committing to having 95 per cent renewable generation by 2025, he said. The SLLs form a part of the company's Green Borrowing Programme, meaning all its debt is funding green assets, including its geothermal power stations.

Asked what the company's lending requirements were likely to be in the coming years, Thomson said the company had a pipeline of potential projects over the next five years to help lead the decarbonisation of New Zealand.

"Our current focus is bringing Tauhara (geothermal power station near Taupo) online mid-2023, but we also have further geothermal development which will follow Tauhara, as well as potential battery, solar and wind developments which may need funding. We don't have anything firm at this stage."

Thomson said SLLs would be part of the range of products that will form future sustainable finance activity, alongside green-certified debt and sustainably-linked bonds. "Sustainable finance is a fast-evolving area, so it's important to stay up to date and not rely on one singular instrument to form our green finance portfolio."

• Published in the Herald's 2021 Sustainable Business report.