‘Win-win’ for Ant Group and climate as it secures Asia’s biggest ESG-linked loan: group treasurer Charles Cao

Ant’s group VP and treasurer says the $6.5 billion deal allows the fintech company to raise capital at a cheaper cost to meet green goals. There are, however, concerns about the lack of transparency behind sustainability-linked structures.

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Ant's group vice president and treasurer Charles Cao says sustainability-linked loans are attractive as they allow flexibility in use of proceeds. He was speaking at the CGS China-Asean Business Leaders Summit held in Singapore. Other panellists include (left to right, excluding Cao): Lee Boon Keng, head of Centre for Excellence in International Trading, Nanyang Technological University; Ben Horton, NTU Earth Observatory; Gabriel Wong, co-founder of MetaVerse Green Exchange (MVGX) and Ben Yuen, chief investment officer of BOCHK Asset Management Limited. Image: CGS-CIMB

For Chinese fintech behemoth Ant Group Co., persuading internal stakeholders that the company should be pursuing sustainability goals is still a huge challenge. 

Its recent US$6.5 billion sustainability-linked loan deal, the largest of its kind in Asia, is hence a “good start” as it manages to get key decision makers, including the group’s chief technology officer and chief customer officer “in the same room” to discuss how to meet environmental, social and governance (ESG) commitments made to its lenders, said Ant’s group vice president and treasurer Charles Cao. 

“The process is new to us. It is new to many Chinese companies,” said Cao, speaking at a panel on decarbonisation and green finance at a China–Asean business leaders summit held in Singapore last Friday (10 Mar). 

“When we do financing, usually you just get a bunch of finance guys and some lawyers in the same room, and the deal is done, right? But this time, it was very different…We had committed to meet a number of KPIs (key performance indicators) and deliver ESG goals, so you now have different people in the room, from your chief sustainability officer and CTO to your customer and data privacy officers, and the conversation changes,” he said, at the two-day event hosted by CGS-CIMB Securities, an integrated financial service provider in Asia, to rejuvenate post-pandemic bilateral economic cooperation between China and the region. 

Last Monday, Ant announced that it had converted a syndicated credit facility into a US$6.5 billion sustainability-linked loan in November 2022. It is the largest ESG-linked loan arrangement in Asia’s loan market, and the third largest globally for last year. 

The transaction was supported by a group of 20 banks across the United States, Europe and Asia. Joint coordinators for the amendment exercise included banks such as Citigroup Inc., Credit Suisse Group AG, JPMorgan Chase & Co. and Morgan Stanley. 

The deal closely follows Ant’s completion of the first ESG-linked loan in China’s technology sector in May 2022, when the Hangzhou-based company, spun off from business magnate Jack Ma’s Alibaba Group Holdings Ltd, arranged a sustainability-linked revolving credit line with French bank BNP Paribas for an undisclosed amount. 

In September 2022, it also received a sustainable working capital loan from Spanish multinational financial firm BBVA to partially fund its investments in green and social good initiatives. Similarly, it did not disclose the loan amount nor list the specific projects it would be spending on. 

Minimal disclosure 

Sustainability-linked loans have interest rates that change depending on whether corporations are able to meet certain environmental goals. Unlike green loans, where the use of proceeds are specifically designated and governed, sustainability-linked loans have provided borrowers with a greater level of flexibility, while helping them secure lower interest rates if they improve their sustainability profiles. 

Cao did not share the KPIs tied to Ant’s newfound capital, even as he spoke about some “behind-the-scenes” before the group had clinched the deal. “The proceeds can be used freely…and there are a number of forward-looking statements that we come up with as commitments to our lenders,” he said. 

“Chinese corporations are also typically not obliged to issue sustainability reports or come up with net-zero emissions road maps. But sustainability-linked loans are attractive as we can raise money at a cheaper cost, so internal stakeholders are saying: Maybe I can benefit from ESG. How much money can I raise? How much can I save?” 

“These are not bad questions to ask. They are a starting point,” said Cao. 

Ant Group published its first ESG report in 2017 and is one of the first Chinese corporations to set net-zero emissions targets across Scopes 1, 2 and 3. In April last year, it said that it had achieved carbon neutrality in its own operations (Scopes 1 and 2), according to 2021 emission figures certified by China Environmental United Certification Centre (CEC).

China has the largest green loan balance in the world, and estimates place its green loan balance at US$3.3 trillion by the end of 2022. Sustainability-linked loans, although still viewed as a niche segment within sustainable finance, are increasingly favoured by Chinese firms. 

Scoring low on governance 

Ant’s $6.5 billion deal is not only a significant milestone for the financial and technology industry, but also sets expectations on how the loan-backed projects are going to be carried out by the group and how sustainability impacts are going to be measured by data, said Jason Tu, co-founder and CEO of Hong Kong-based green data start-up MioTech. The implementation of the projects is what will matter, he tells Eco-Business. 

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Ant Group scored 8 out of 10 in MioTech’s Controversy Score, and was rated “high risk” when considering social and governance factors. [Click to enlarge] Image: MioTech

Commenting on how concerns are spreading about the real impact of ESG targets under sustainability-linked structures, Tu said that MioTech’s ratings report put Alibaba Group’s ESG performance at the ‘BBB’ grade in the last quarter of 2022, a four-category jump from its previous ‘CC’ grade, which amplifies the efforts that the group and its affiliate firms, including Ant, have made to transition into more sustainable and socially responsible companies. 

Data that combs publicly-available reports and news sources, however, also shows that Ant is at “high risk” when it comes to controversies, and it particularly scores low when social and governance factors are considered. A controversy score report that Tu shares with Eco-Business shows Ant facing plenty of customer complaints on data security and privacy, which he believes should be of concern. 

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