A $3 billion sustainability-linked loan — the largest issued to date — was included in the financing for Apollo Global Management's acquisition of a majority stake in sustainable packaging manufacturer Novolex Holdings.
The financing, which also includes $1.6 billion in sustainability-linked bonds, “is tied to our greenhouse gas (GHG) target associated with Novolex operations,” said Erik Gonring, Director of Sustainability for Novolex. “Our goal is to achieve a 30% reduction in greenhouse gas emissions per ton of production by 2030. This target served as the key performance indicator to determine our qualifications for securing sustainability-linked financing. Additionally, our demonstrated track record of prioritizing additional environmental, social, and governance (ESG) strategies made us a good candidate for a long-term partnership focused on measurable sustainability outcomes.”
Sustainability-linked loans (SLLs) incentivize environmental improvements among corporate borrowers by linking terms of the loan to sustainability targets, according to Sustainalytics, a Morningstar company. This so-called “green financing” was expected to grow in popularity even during the COVID-19 pandemic. A Sept. 30, 2020, article by Skadden, Arps, Slate, Meagher, & Flom projected “a long-term appetite for SLLs, with investors, stakeholders, and regulators demanding sustainability now more than ever.”
Novolex’s strategy focuses on:
- Expanding its portfolio of packaging products made from recycled and renewable materials;
- reducing process waste;
- driving end-of-life circularity.
“We expect the partnership with Apollo to support our long-term growth,” Gonring noted, “especially given their significant knowledge of the packaging space and shared commitment to offering choice, innovation, and sustainability. They are well-suited to help us realize our growth potential and further strengthen our business, expanding our portfolio of both resin- and fiber-based packaging products and strengthening our blue-chip customers.
“For our plastic products, that means developing products that can use more post-consumer recycled content and renewable bio-based resins, for example. We will also look at ways to support increased product recyclability and compostability. Our compostable BioTuf can liners and PLA cups from our Eco-Products business illustrate some markets for sustainable plastic packaging that we serve today. These goals align well with Apollo's track record of partnering with firms to drive integration of ESG into business priorities.”
In an April 13 press release, Rob Seminara, Partner at Apollo, said: “We are pleased to have completed our investment in Novolex and are excited to partner to drive innovation and growth. Our shared commitment to driving a more sustainable future was integral to our investment in Novolex, and we look forward to working together to realize the company’s growth strategy, while further strengthening its blue-chip customer base and suite of food packaging products.”
Novolex’s intended 30% reduction in scope 1 and 2 GHG emission intensity is compared against a 2019 baseline. “Scope 1 emissions are direct greenhouse gas emissions that occur from sources that are controlled or owned by an organization,” Gonring explained. This includes, for instance, emissions associated with fuel combustion in boilers and furnaces. “Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling. Although scope 2 emissions physically occur at the facility where they are generated, they are accounted for in an organization’s GHG inventory because they are a result of the organization’s energy use.”