With advice from Barclays, CMS Energy and Consumers Energy launch first-ever sustainability-linked loans for a U.S. borrower.
CMS Energy Corporation began this year with its principal subsidiary Consumers Energy, Michigan’s largest electric and natural gas utility, earning a spot as one of Newsweek’s Top 10 Greenest Companies in the Nation. But, Patti Poppe, President and CEO of CMS Energy, continued to look for ways to demonstrate their “long-term strategic commitment to protect the planet”.
In February, CMS Energy and Consumers Energy announced Consumers Energy's planet goals. By 2040, Consumers Energy plans to reduce carbon emissions by 80 percent, have renewable energy sources and energy storage deliver more than 40 percent of its energy and eliminate its use of coal for electricity altogether. In June 2018, Consumers Energy filed its Integrated Resource Plan with the Michigan Public Service Commission and proposed to reduce its carbon emissions by more than 90% by 2040 – exceeding its 80% reduction goal.
This leadership in sustainability from a long-term client did not go unnoticed by Barclays’ team. Jed Lynch, Head of Social Impact Banking at Barclays, had heard from European colleagues about a new type of credit facility, in which direct pricing benefits were tied to a borrower’s sustainability performance.
As his team considered which clients could be good candidates to pioneer a similar structure in the U.S., “CMS Energy came to the top,” Lynch said. “The motto of ‘People, Planet and Profit’ was a clear focus to the company—including on quarterly earnings calls.” He added, “For Barclays to initiate its first foray into offering sustainability-linked loans to CMS Energy was a natural fit.”
A growing number of companies are aligning their businesses to future-focused, sustainable practices and many also seek financial products and services that can enhance this commitment to sustainability. Sustainability-linked loans originated in Europe and the first of its kind recently came to market in the United States. These revolving credit facilities include a secondary pricing mechanism tied to improvement or degradation on a sustainability metric.
While green loans and bonds can only be applied to “green projects,” the proceeds of a sustainability-linked loan can be applied more broadly. From a lender’s perspective, the facilities encourage a company to make its business practices more sustainable by providing a direct financial incentive through the potential for lower financing cost.
Barclays approached CMS Energy and Consumers Energy with the new financing idea, explaining how it would work. Apart from the standard pricing grid of the loan, Barclays would tie a secondary pricing mechanism to CMS Energy and Consumers Energy’s renewable energy targets. Progress made in relation to the sustainability benchmark would result in a pricing discount or premium. Seeing an innovative financial product like this as a reflection of its own unwavering commitment to the planet, CMS Energy and Consumers Energy seized the opportunity to make history with the first sustainability-linked financing tool of its kind in the U.S. market.
The sustainability-linked loan was completely aligned with what we were doing as a company. Having Barclays follow our business and the goals we set, and proactively bring this innovative idea to CMS Energy and Consumers Energy was great. When they presented it, we said, ‘absolutely – let’s do this.'Sri Maddipati, Vice President, Treasurer and Investor Relations for CMS Energy and Consumers Energy
Barclays served as the Sustainability Structuring Agent for the loans. With $1.4 billion of new credit facilities tied to sustainability performance, CMS Energy, Consumers Energy and Barclays are setting a whole new standard for corporate accountability and sustainable finance among U.S. companies.
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