Blazing the ESG-linked loan trail in Chile

Banco Santander has blazed an ESG (environmental, social, governance) trail in Chile, closing the first syndicated ESG-linked loan awarded to a locally owned company – for US$40mn to a glass bottle manufacturer and recycler. 

This followed the awarding by Santander in 2019 of the first ESG-linked loan in the local market, for US$30mn to a Chilean unit of Acciona. That year also saw Santander and BBVA, along with Spain’s CaixaBank and Japan’s Mizuho Bank, award a US$200mn syndicated loan to Acciona to finance solar and wind power investments in Chile.

With costs largely in line with non-ESG financing – and the fact borrowers gain kudos in the eyes of investors and other stakeholders – more deals will follow in the country.

To find out more, BNamericas spoke with Santander Chile CEO Miguel Mata.

BNamericas: [Glass bottle manufacturer and recycler] Cristalerías Toro and Santander closed a deal for the first ESG-linked syndicated loan awarded to a Chilean-controlled company. How did this loan come about?

Mata: There are many companies that are understanding that sustainable production is a value-added differentiator and will be a requisite in the future. Cristalerías Toro is a company which internalized that many years ago, introducing recycling and renewable energy as essential elements of its productive process, making significant investment in their implementation. This is why, when they sought financing for a new investment, we offered them a financing structure that permits them to underscore this commitment and deepen it via the sustainability objectives that have an impact on the loan rate.

BNamericas: In general, what are the challenges associated with such transactions and what are the benefits – for the bank and for clients?

Mata: The main challenge is multiplying these types of operations and that an increasing number of companies incorporate them into their DNA. In any case, we have witnessed growing interest, since the benefits are clear and many, both for the company itself and the perception of the company. These benefits become increasingly evident and, in fact, much recent research has shown that companies that incorporate these variables as part of their objectives tend to have better financial performance, are more resilient in periods of crisis, and with each passing day become more attractive and valued by the main investors and society as a whole. 

BNamericas: Santander has announced other ESG initiatives (funds) in Chile as well as in Mexico. Does Santander have a regional ESG strategy?

Mata: Indeed, on a local level, Santander Asset Management launched its first ESG mutual fund, that today is the biggest in the local industry. This milestone builds on the financing we have provided under these criteria to Acciona and Cristalerías Toro. 

The above was not unplanned but faithfully reflects our commitment to responsible banking principles that Grupo Santander officially signed in September 2019 and which constitute an action framework to adapt to the UN’s Sustainable Development Goals. Last year Santander established a series of objectives in various spheres, among them, helping our clients migrate towards a green economy. For that reason, the group will mobilize, on a global level, 120bn euros (US$140bn) through 2025 and 220bn euros through 2030 in financing that helps address climate change.

It is worth remembering that in 2019 Banco Santander and Santander Chile were chosen by Dow Jones Sustainability Index as the most sustainable bank in the world and in the country, respectively. All of the above reflects our commitment to help people and companies progress, in particular, in this new scenario that demands us to be more responsible in terms of our surroundings and environment. 

Our sustainability strategy is comprehensive and also plays a role in internal operating decisions, with the compensation of CO2 emissions from our operations, with the adherence to the Acuerdo de Producción Limpia [a local clean production agreement promoted by sustainable development-focused business network Acción Empresas] and with the systematic reduction of waste in our facilities, among others. And commercially, we have also been value proposition leaders for our clients, with programs such as Compensación de la Huella [a scheme where clients can offset carbon emissions associated with their purchases], discounts and promotions for the purchase of environmentally friendly products and various other initiatives that we are working on.

BNamericas: Are there sectors or industries particularly suitable for this type of loan?

Mata: More than particularly suitable sectors or industries, what we see are companies that aspire to be leaders in sustainability issues and that find in Santander the best partner to make that goal a reality. 

We are certain that sustainable production will be a cross-sector requirement sooner rather than later, particularly visible in those sectors that by their very nature spur changes in production, such as renewable energy, as well as exporters that operate with developed markets and those industries historically prone to have a greater impact, where concern for sustainability becomes a differentiator.

BNamericas: What is the outlook for ESG loans in Latin America?

Mata: Sustainable financing worldwide is growing at a triple-digit pace year by year, reaching a volume of US$165bn in 2019. Although today it is led by Europe, where Banco Santander has been one of the forerunners and leaders, we see an opportunity in Latin America given that social and environmental issues have much space to grow and where the possibility of generating a positive impact is greater.

The current situation will create opportunities to carry out transformations in these areas, improvements that we want to support as a bank, promoting the product with our clients, who have already shown a growing interest in this type of financing. That makes us think that the trend will be very favorable in the coming years. In this sense, we hope that more local companies will see the benefits of this type of financing for both themselves and society.