The transformation of the Netherlands into a circular economy needs leaders who invest in advancing sustainability. One of those trailblazers is waste processing company AVR, which recently received a Rabobank-arranged sustainable syndicated loan to help it keep the wheels of innovation turning.
Waste processing company AVR-Afvalverwerking invests tens of millions of euros a year in upgrading its waste recycling processes. The company recently secured its investment budget for many years to come by renewing a credit facility, as part of which it received a syndicated loan to fund its plans from a pool of five banks headed by Rabobank, in addition to a private placement.
What makes this syndicated loan different from other, similar loans is that AVR has made the credit arrangement with the banks contingent on several long-term sustainability targets. It will receive an interest rate discount if it manages to meet these targets. “Before this arrangement, we were not really familiar with the phenomenon of sustainable revolving credit facilities. Due to the type of business we operate we are part of the circular economy, which means we are continuously looking for opportunities to improve our practices in that area,” says AVR CFO Rob de Fluiter Balledux. “This ‘green’ loan facility demonstrates that the banks recognize that we are actively working to advance the circular economy, which provides AVR with an additional opportunity to show the outside world what exactly these advances entail.”
Over the five-year term of the facility, AVR will be earning its discount through carbon capture and storage as well as by increasing its plastic recycling rates and reducing staff sick leave. AVR selected these targets itself, based in part on internal KPIs related to Corporate Social Responsibility (CSR) and Environmental, Social and Governance (ESG) performance. The targets, including the required improvement rates, are set annually. AVR Treasurer Kees de Winter: “It goes without saying that we were asked critical questions by the banks about just how ambitious we were in defining our targets. The goals we ended up setting also had to be compatible with the type of business we operate and the products we develop. In other words, our targets are a natural extension of those factors.”
The advantage of this new type of loan is not so much the interest rate discount itself, says Juliette Stevenaar, DCM Loan Syndication at Rabobank, which coordinated the syndicated loan and advised AVR on the sustainable loan. “Although it might involve just a few basic points, by incorporating sustainability criteria into your loan, you can communicate to the outside world – and certainly also within your own ranks – that your organization has strong commitments to CSR and ESG policies and practices. You force yourself to report on these issues to external stakeholders.”
As the largest waste processing company in the Netherlands, AVR is responsible for managing waste flows and materials we previously considered waste without any value. The company operates in an industry which, roughly 20 years ago, wouldn’t necessarily be associated with sustainability. But all that has changed: waste has taken on added value, and this value only continues to increase. The waste incineration plants operated by AVR in the Dutch towns of Rozenburg and Duiven generate a total of 8.5 petajoules in renewable energy and supply increasingly more efficient heat, steam, and electric power – enough to provide power and heating to more than 160,000 homes in Rotterdam and the Westervoort-Arnhem area.
But AVR continues to invest in order to explore the opportunities offered by waste even more fully. The carbon emissions generated by the plants will soon be captured and supplied to commercial greenhouse fruit and vegetable producers – in quantities expressed in targets in the loan documents. De Fluiter Balledux: “Instead of storing carbon underground – a process known as Carbon Capture Storage – we will be using carbon: Carbon Capture Usage, if you will. We expect this to really start taking off eventually, but for now it will take a while before we earn a return on our investment.” Another element of the sustainable targets set for the syndicated loan is plastics recycling. In fact, AVR recently commissioned a first state-of-the-art production line at its Rozenburg facility, but aims to double its capacity by mid-2019.
“As well as adopting the most sustainable possible practices when it comes to energy-from-waste, this also allows us to extend our proposition in terms of waste as a resource.”
These ambitious investments will start to pay off only in the longer run. “Banks will just need to trust us on that score. Something we really value about Rabobank is that their people are so experienced when it comes to our industry,” says AVR Treasurer De Winter. “They’re aware of the ins and outs and of the challenges we face, and are interested in building a long-term relationship. It means they were able to come up with some razor-sharp solutions. They distinguished themselves, both as a team and in terms of what they delivered for us.”
“Sustainable finance could well become the standard”- Bas Bakker, Wholesale Sector & Team Head
More Sustainable Loans
Stevenaar perceives a growing interest in the market in more sustainable loans. “And not just at a company like AVR, for which sustainability is pretty much second nature. It’s certainly on the minds of nine out of every ten companies we interact with, although not all businesses will have the fundamentals in place to define internal sustainable targets as such. I should add that investors also tend to prefer allocating their funds to recipients that can demonstrate that they comply with CSR and ESG criteria.”
As Rabobank Wholesale Sector & Team Head Bas Bakker makes clear, the sustainability label is far from being a marketing gimmick and certainly cannot be described as “greenwashing.”
“If we are to achieve the climate targets by 2030 – one area where circular economy practices can play a crucial role – companies need to become more sustainable in the long term. Remember that we’re only on the cusp of a revolution that will take several decades. We’re talking about a long-term and complex process that companies will need to integrate into their business operations and their funding. Sustainable finance may well become the standard in the future, which means that borrowers will need to pay a premium in the future for loans which are not contingent on sustainable criteria.”
Read more on Rabobank.com/wholesale
This article is part of the Wholesale Banking for Better series.
Bas Bakker’s Career Overview
Having earned a degree in Economics from the University of Amsterdam, Bas began his career at ABN AMRO, where he held a variety of roles in the SME and Wholesale divisions, including Loans and Mergers & Acquisitions. He joined Rabobank Large Corporates Netherlands Client Coverage in 2009, where, as Sector & Team Head, his portfolio of responsibilities includes some of the larger Dutch energy and waste processing companies. The two main priorities in these industries are the energy transition and the circular economy.
Juliette Stevenaar’s Career Overview
Utrecht University Economics graduate Juliette Stevenaar began her career at Rabobank Wholesale Food & Agri in various positions in Credit Analysis, Relationship Management, and Sector Banking.
In Capital Markets Loan Syndication, which she joined in 2011, she is in charge of structuring and arranging syndicated loans, mainly to Dutch companies.