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Philips links sustainability performance to corporate finance

Philips has agreed a unique deal with a consortium of international banks that links the company’s sustainability performance to the interest rate attached to a €1 billion (£836 million) loan.

The company has agreed to have its current sustainability efforts assessed by independent provider of environmental, social and corporate government ratings Sustainalytics, which will be used as a benchmark for future improvements.

This year-on-year approach will determine how much interest is to be paid on the revolving credit facility, with greater achievements to be met with a lower rate. Alternatively, interest on the loan will increase should Philips go backwards in its sustainability efforts.

This will continue until April 2022 when the loan matures, during which time it will be used for general corporate purposes.

Chief financial officer Abhijit Bhattacharya said the innovative new mechanism “underlines our commitment to sustainability as an integral part of how we do business,” following the adoption of the company’s ‘Healthy people, sustainable planet’ programme last year.

This included plans for Philips to become carbon neutral in its operations by 2020, supplied by 100% renewable electricity, and to grow its ‘green revenues’ to 70% of sales. This refers to revenues generated through various products or solutions that offer a significant environmental improvement.

ING, which worked with Philips to develop the agreement, said it represented “a mind-shift in corporate financing” by creating sustainability incentives within a financing structure.