BANGKOK -- Thai Union Group, the world's biggest canned tuna producer, has secured its first sustainability-linked loan of $400 million from a group of financial institutions, Nikkei Asia has learned. If the company achieves set targets such as strengthening the traceability of its seafood, the interest rate will be lowered by the lenders.
Thai Union, which engages in the canned tuna, frozen seafood and other businesses, makes about 70% of its overall revenue in the U.S. and Europe, where awareness of environmental, social and corporate governance, or ESG, factors is strong among retailers and consumers.
That is why Thai Union has so far addressed challenges such as preventing the overexploitation of fishery resources and protecting workers' human rights in the manufacturing process.
Borrowers of sustainability-linked loans can receive favorable interest-rate treatment, depending on how much they have achieved targets that lead to environmental protection and other objectives. By using this type of loan, Thai Union will be able to benefit in the form of a reduction in the amount of interest it pays if its ESG efforts make steady progress.
Japan's Mizuho Bank and MUFG Bank, and Bank of Ayudhya, which comes under the umbrella of MUFG and is headquartered in Bangkok, have become the lead managers of the syndicated loan, of which $183 million will be dollar-denominated and the remaining $217 million baht-denominated.
The contract period is five years. Although the interest rate has not been revealed, it will be reviewed periodically, depending on the progress made by Thai Union toward achieving its traceability and other targets. "If the targets are achieved, the interest rate will be lower than that on ordinary loans," said an official at one of the financial institutions involved in the syndicated loan.
The group of banks lending the loan to Thai Union will use things such as the percentage of raw materials procured from suppliers, giving consideration to sustainability as indicators and set the interest rate that applies to the company.
Thai Union will procure more fish from fishing boats equipped with surveillance cameras and global positioning systems, and check to make sure that there is no overexploitation of fishery resources or forced labor, among other things.
The group of lenders to Thai Union will also take into consideration the Dow Jones Sustainability Index, which evaluates companies in terms of greenhouse gas reductions and economic, environmental and social aspects, when setting the interest rate for the company.
Amid growing interest in ESG factors around the world, financial institutions are also under pressure to proactively address the issue of sustainability. These lenders think that they can contribute to a sustainable society through such new instruments as sustainability-linked loans.