Favorable financing through sustainability excellence
When Sandvik renewed and upsized its revolving credit facility, sustainability came to play a significant role. The facility is linked to Sandvik’s targets and sustainability initiatives for carbon emissions and waste circularity.
In June 2022, Sandvik renewed and upsized its revolving credit facility from SEK 9 billion to SEK 11 billion, in the process bringing sustainability to the forefront. By linking the credit to its sustainability targets, the company can reduce the commitment fee. “It proves that the banks believe we are a sustainable company,” says Mats W. Lundberg, Head of Sustainability at Sandvik.
The credit facility works as a backup for the financing of Sandvik and can be used for general corporate purposes. The previous credit facility from 2016 was about to end when Sandvik initiated the work with a new one this winter.
In this process it was a great strength to have our ambitious, quantified sustainability targets.
“We invited a total of 14 banks to participate, and all of them accepted,” says Ola Svensson, Corporate Finance Manager at Sandvik.
What differentiates this credit facility from the previous one is the link to the company’s sustainability targets for 2030. That was unusual in 2016, but today it is a growing trend from the financial institutions to put demands on their customers.
“The banks want to ensure that their lending is sustainable,” Svensson says. “In this process it was a great strength to have our ambitious, quantified sustainability targets.”
The credit facility is linked to the sustainability targets to reduce carbon emissions by 50 percent and increase waste circularity to 90 percent. The safety targets were not included since Sandvik has been working with them for a long time and there is more work to be done in the areas of climate and circularity. The annual KPIs are aligned with the goals, and the interest margin on the facility is affected positively or negatively depending on whether the KPI levels are met.
“It clearly shows the link between sustainability and earnings to different stakeholders,” Lundberg says. “It also puts pressure on us to deliver on our sustainability targets.”
Sandvik recently committed to the Science Based Targets initiative, meaning its climate targets will be validated by a third party. When the targets have been validated, the KPIs related to the credit facility will be updated.