Wesfarmers has reported its sustainable development performance for over 20 years and has been focusing on the development of sustainable finance for a period of time. Luigi Mottolini, Executive General Manager of Finance at Wesfarmers Group, stated that issuing "green bonds" is not appropriate as Wesfarmers does not provide specific financing for specific assets. However, when loans related to sustainable development appear, "they seem to be more suitable for our funding," explained Luigi.

The Federal Bank took the lead in providing a transaction of AUD75 million to Queensland Airport Limited in 2019, linked to sustainable development loans in Australia. If the Gold Coast Airport meets the agreed carbon reduction targets, Queensland Airport will receive a margin discount. In March 2020, Wesfarmers' $400 million working capital fund further boosted the proportion of market indigenous employment and reduced the emission intensity of its chemicals, energy, and fertilizers (WesCEF) business by linking profit margins to two environmental, social, and governance (ESG) goals. These goals reflect Wesfarmers' broad views on ESG issues, rather than a narrow focus on environmental indicators.

Overcoming obstacles and setting goals

Reaching the goal is not easy. Given our diverse business, these goals must be accepted and applied at both the business level and the Wesfarmers board level, "Luigi said.

In addition, from a sustainable development perspective, Wesfarmers ranked first in the Dow Jones Global Leading Retailers Index last year. Richard Wiles, Director of Institutional Banking and Markets (IB&M) at the Federal Bank, said: "There is no doubt that Wesfarmers are already doing great work. But for structural integrity, they must go beyond what they have already planned to do. Luigi said, this is a From the perspective of the lender, it is seen as an extension of the target, but we believe it can also be achieved, although it requires some effort and some capital expenditure.

Strengthening communities through social inclusion

After years of joint efforts, 3% of Wesfarmers' Australian workforce is indigenous or Torres Strait Islander. However, after the Coles spin off in 2018, this proportion decreased to 1.7%. Naomi Flutter, Executive General Manager of Wesfarmers Corporate Affairs, stated: "Achieving appropriate levels of indigenous employment across Australia will establish stronger communities, and its benefits will permeate our business.

The emission reduction targets only apply to WesCEF producing ammonium nitrate. At present, there is no technology that can eliminate emissions that are difficult to reduce during the production process. However, Wesfarmers invests in domestic research and, where appropriate, overseas research to support breakthroughs, as part of the group's net zero wish for this business in the 2050 timeline.

Further downward supply chain

Other potential goals may be gender diversity in leadership roles, renewable energy use, and ethical procurement audits.

More generally, Mark Peacock, Director of Sustainable Finance at Federal Bank IB&M, foresees potential goals to reduce the content of recyclable materials used in landfills, production processes, or end users. We may even see organizations increasingly influencing their supply chains around good environmental or social practices.

To reflect the increasing importance of ESG and sustainable finance for organizations and their stakeholders, the Federal Bank has created a new team of risk and product experts. Charles Davis, Director of Sustainable Finance and ESG, stated that the team provides end-to-end services to help customers transition to a more sustainable future.

Enhance the credibility of environmental, social, and governance

Luigi stated that working capital funds clearly demonstrate Wesfarmers' commitment to ESG considerations, linking their financing costs to achieving these goals. This is a tangible and measurable outcome, and if we achieve or fail to achieve these goals, it will have a measurable impact on our cost of capital. He believes that the more ESG standards Wesfarmers meet, the wider and more diverse investors will be focused on their debt, which means better market access and pricing.

Naomi stated that this transaction proves that the group's attention to the environment and the communities in which it operates has improved its credit proposition. It's exciting to see the lender say this enhances your credit story and we will reflect it in the margin we collect, "she said. They are trying to value the benefits of making Wesfarmers a stronger credit proposition.