Thames Water has signed a £1.4 billion, five year Revolving Credit Facility with the interest rate tied to sustainability performance - outperforming an Environment, Social and Governance (ESG) benchmark will result in a lower interest rate.

The company is the first UK corporate to tie the interest rate it will pay on the RCF to its Infrastructure GRESB score (Global Real Estate Sustainability Benchmark).

The new facility matures in 2023, with extension options to 2025, and will be used for general corporate purposes. It has been provided by a syndicate of 13 banks, co-ordinated by BNP Paribas.

In September 2018 the company was recognised by the GRESB infrastructure survey for its commitment to sustainability. With a score of 86/100 for infrastructure, Thames Water ranked 3rd in Europe out of 173 participants, Thames Water finished seventh globally for ‘Infrastructure’ of 280 businesses that took part in the evaluation and top globally in the ‘Water and Sewerage’ category.

In November 2018 the water company reinforced this by tying the interest rate on the RCF to its sustainability performance - the innovative loan will see its cost of debt on the loan tied to its annual performance against ESG metrics.

GRESB is an independent, external ESG benchmark which assesses the sustainability performance of real estate and infrastructure portfolios and assets worldwide.

Commenting in its interim results report, the water company said it is committed to improving ESG performance and the last six months had seen it significantly enhance its sustainability disclosures, attracting positive external recognition.

Thames published its first ESG statement in October this year, going beyond statutory reporting requirements. The statement outlines how the utility is delivering against ESG criteria, bringing together three years of data in an accessible format.

Outperforming the ESG benchmark will result in a lower interest rate, with any financial gains boosting Thames Water’s charitable fund. Conversely, any underperformance will be borne by Thames Water.

Brandon Rennet, Thames Water’s Chief Financial Officer commented:

“Over the last two years we’ve set a new strategic direction to build trust in Thames Water as a responsible water and wastewater services provider. This facility closely follows the creation of our Green Bond Framework and underlines our commitment to sustainability and the pursuit of the UN Sustainable Development Goals. We’re delighted to have the support of our relationship banks as we do the right thing for our customers and the environment.”

Expectations are changing for real asset investments and leading institutional investors are incorporating environmental, social and governance performance of real assets into their investment process. Regulators are also mandating ever more ESG disclosures and improvements.

GRESB emerged from a collaboration of the world’s largest pension funds and academics from Maastricht University and the University of California at Berkeley. Starting with the inaugural GRESB Assessment in 2009, the collaboration helped define ESG concepts and frameworks for the real asset sector that have now become the global standard for the industry.

The Assessments are guided by what investors and the industry consider to be material issues in the sustainability performance of real asset investments and are aligned with international reporting frameworks such as GRI and PRI.

Assessment participants receive comparative business intelligence on where they stand against their peers, a roadmap with the actions they can take to improve their ESG performance and a communication platform to engage with investors.

Investors use the ESG data and GRESB’s analytical tools to improve the sustainability performance of their investment portfolios, engage with managers and prepare for increasingly rigorous ESG obligations.

Cecile Moitry, Director of Sustainable Finance and Investment at BNP Paribas CIB, said:

“We are proud to support Thames Water in advancing its environmental and social objectives through this innovative transaction. It’s a tangible example of where financing can be aligned with positive impact incentives to encourage sustainable activities.”

During the last two years, Thames Water has seen a 51% change in ownership, appointed an independent Chairman and refreshed its Executive team. As part of its new approach, Thames Water is in the final stages of a major review of governance, with a Board restructure and the closure of its Cayman Islands subsidiaries almost complete. The UK’s biggest water and waste services provider launched its Green Bond Framework in January 2018 alongside a £705 million Green US Private Placement, and recently published its first ESG statement to increase disclosure around ESG metrics.