Millions of pounds of plastic bottles wash ashore annually in Haiti—a relentless, polluting testament to the 17.6 billion pounds of plastic that enter oceans every year. Fortunately, this sampling of the world’s ocean plastic doesn’t remain as beach litter. Instead, HP pays local residents to collect the bottles, which are then washed and recycled into new products. It’s an effort that helps the technology company meet multiple needs: source raw materials for products, market those products as sustainable, generate good PR, and achieve its corporate social responsibility goals.
The initiative highlights how business leaders increasingly view sustainability as a company-wide objective. HP is taking that notion even further by connecting its climate and social goals to its finances. In 2021, the company debuted its first-ever $5 billion sustainability-linked loan (SLL), along with a 10-year, $1 billion sustainability bond. The SLL provides reduced loan pricing if HP meets its dual aims of reaching net-zero greenhouse gas emissions by 2040 and doubling the number of Black executives by 2025. The move underlines how closely HP ties the success of its sustainability goals to its viability in the future economy.
“The long-term success of our business will be inextricably linked to our ability to help solve the challenges facing the planet and society as a whole,” HP Chief Financial Officer Marie Myers said when HP announced the financing.
This innovative approach to corporate finance is gaining steam—the volume of SLLs in the US increased by 292 percent to $52 billion from 2020 to 2021. And for good reason: SLLs lend credibility to companies’ sustainability goals in an era of greenwashing and its less cynical cousin, greenwishing. Sustainable finance tools also allow companies to move past the days of sustainability leaders and finance executives working at odds. Aligning their priorities creates a powerful incentive for financial decisions to consistently reflect the organization’s values, which better enables departments across the company to reach their sustainability goals.
The evolution of sustainable financing
The first iteration of sustainable financing, which emerged with the help of the World Bank in the mid-aughts, focused primarily on debt and credit instruments that funded specific sustainability projects. SLL vehicles expand on the concept. Unlike their green bond predecessors, SLL proceeds can be used to fund whatever the borrower deems necessary—general operations, growth, and more. This flexibility allowed for broader adoption of SLLs, which overtook green bonds and loans in 2018.
Rather than tying proceeds to sustainability, SLL terms and pricing are connected to the company’s goals and outcomes, including both social and environmental objectives. On the flip side, borrowers usually, but not always, face increased interest expenses or other potential penalties if they don’t achieve their stated aims.
“The SLL framework ensures that environmental or social goals don’t remain siloed from other company objectives and that finance executives consider the ESG impacts of all their decisions.”
The SLL framework ensures that environmental or social goals don’t remain siloed from other company objectives and that finance executives consider the ESG impacts of all their decisions. The reporting requirements of SLL add an accountability factor, with most mandating documentation and verification of the borrower’s achievements.
SLL instruments have been popular in Europe for years, but they’re just now gathering momentum stateside as companies make sustainability a priority across the organization. The US’s $52 billion in SSL volume between January and May of 2021 still lagged behind the EU’s $87 billion issued in the same period. However, the US may catch up soon as companies like HP explore how SLLs can help reiterate their ESG priorities to their employees, customers, and the public.
Un-siloing Sustainability
For companies that want to establish themselves as next-generation leaders, sustainability must be part of everything they do. Consider HP’s goal to double its number of Black executives by 2025. Left to Human Resources, this goal could easily be stymied by a lack of funds for recruitment and leadership training or by limited buy-in across departments with open leadership positions. The goal, even if generally supported, could always be pushed to the next hiring cycle or the next year. But when the goal becomes a financial imperative with a deadline, leaders have bottom-line incentives to ensure it is prioritized and reached.
Beyond HP and its equitable staffing goals, HR departments across the tech sector have strong incentives to leverage their companies’ sustainability efforts. The ongoing Great Resignation has made the battle for talent fierce. And nearly 80 percent of employees in a recent Edelman Trust Barometer survey said they expect their company to act on issues such as climate change, vaccine hesitancy, automation, misinformation, and racism. In a follow-up survey, 61 percent said they evaluated employers based on the company’s values and beliefs.
In this context, SLLs demonstrate a company’s sustainability commitments to current and prospective employees. In a sea of technology companies making grand statements about their sustainability plans, the loans can help differentiate genuinely committed organizations from those simply greenwashing.
“In a sea of technology companies making grand statements about their sustainability plans, [SLLs] can help differentiate genuinely committed organizations from those simply greenwashing.”
Multiply those financial incentives to reach sustainability goals across all other relevant areas—supply chain, operations, marketing, and more—and it’s clear how sustainable finance supercharges the effort.
A Shared Focus for the Future
Back in Haiti, the plastic collection and washing effort continues to ramp up. Thanks to a newly-built washing line, the operation is expected to divert 10 to 20 million pounds of plastic from the ocean each year and create 1,000 more jobs and other income opportunities for local Haitians. It’s a meaningful effort on its own. But now, with HP’s SLL, the impact reverberates across the organization. The recycled products reduce HP’s greenhouse gas emissions, helping the company meet its sustainability goals and benefit from the terms of the SLL.
“Over the next decade, HP will stand for a new era of progress— where climate change is reversed, human rights are universally protected, and digital equity democratizes opportunity for all,” said HP President and CEO Enrique Lores in the company’s 2020 Sustainability Impact Report. And by forging its sustainability objectives with its finances, the company ensures that these initiatives are never tangential but instead a consistent and primary focus.
share
