JetBlue closes airline industry’s first sustainability-linked loan with BNP Paribas as it aligns financial strategy with ESG goals
Wed 26 Feb 2020 – New York-based carrier JetBlue has closed a sustainability-linked loan (SLL) with global bank BNP Paribas by amending an existing $550 million senior secured revolving credit facility. Included under the terms of the SLL is a provision that aligns JetBlue’s strategic initiatives with its environmental, social and governance (ESG) goals and objectives. The SLL provides a pricing mechanism related to the applicable margin and commitment fee, which is then linked to the airline’s ESG score provided by Vigeo Eiris, an international provider of ESG research and services for investors and organisations. The market in green or sustainability-linked loans has grown rapidly in recent years as companies seek to improve their environmental and social performance, and with investors becoming increasingly concerned over exposure to climate risks. By 2018, the global market for green or sustainability-linked loans had reached over $99 billion and JetBlue says its SLL is an airline industry first.
“Our owners, many of whom are also crew members, want to see how ESG initiatives are connected to our financials,” explained Sophia Mendelsohn, Chief Sustainability Officer for JetBlue. “As the first airline to accomplish this type of transaction, we are directly linking our commitment to addressing environmental and social issues with our bottom line.
“We are proud of what we have accomplished but also understand we have more to do in reducing our carbon footprint and meeting the needs of our stakeholders.”
Last month, JetBlue announced it would be the first US airline to offset the carbon emissions from its domestic flights as of July (see article). It also signed an agreement with Neste to purchase sustainable aviation fuel for use on flights from San Francisco starting this year.
JetBlue started to formally review its financial partners’ sustainability strategy and commitments in 2018 and has shifted business to financial partners with stronger ESG policies themselves. Last year, BNP Paribas also helped the company move to sustainable cash management by creating tailor-made solutions to meet the airline’s ESG and treasury guidelines.
“A company not prepared to evaluate every aspect of their business through an ESG lens should feel pressure from investors,” Mendelsohn told the Wall Street Journal.
The key feature of a sustainability-linked loan is that the pricing of the loan is tied to the borrower’s performance against certain pre-determined sustainability criteria and not conditional on the proceeds being used for a particular purpose, as opposed to a ‘green loan’ where the proceeds are used for green purposes. SLLs accounted for $43.2 billion of the $99 billion SLL and green loan market in 2018, according to Bloomberg. European markets – principally in Spain, France and Italy – lead global SLL volumes, with a share of more than 80% of the market.
ESG rating agencies consider various data points, such as carbon emissions performance, to arrive at their respective scores and it is agreed when the loan is entered into that the pricing will change by reference to whether particular ESG performance targets are hit.
Vigeo Eiris, the ESG services provider in the JetBlue/BNP Paribas SLL, was formed in 2015 by the merger of Vigeo and Eiris, with credit rating agency Moody’s acquiring a majority stake in 2019. The company said it had evaluated JetBlue’s ESG performance for the SLL and will continue to do so every year.
“JetBlue’s SLL is just one element of the airline’s comprehensive ESG and sustainable finance strategy,” said Florence Pourchet, Co-Head of Global Banking Americas at BNP Paribas, who also oversees the bank’s sustainable finance strategy in the Americas. “As a leader in sustainable finance, BNP Paribas is dedicated to working with our corporate clients to identify tailored solutions that align with their specific efforts and commitments towards achieving their ESG goals.”
BNP Paribas closed a A$1.4 billion ($960m) SLL last year with Sydney Airport, which was a first for Australia and the largest transaction of its kind in Asia Pacific. The interest the airport will pay on the loan will depend on the annual assessment of its ESG risk rating by Sustainalytics.