Story | 02/01/2021 07:30:45 | 5 min Read time

UPM takes financing to the darkest shade of green

UPM has established a Green Finance Framework as part of its aim to create a future beyond fossils. This accelerates the company’s commitment to green values and ensures a high environmental standard across all operations.

All things green have become an essential part of the worlds of investments and financing. Hence, every company must now walk the walk when it comes to sustainability.

“A lot of companies can claim to be green and sustainable, but not all can put their money where their mouth is, and even fewer can do so in a project as impactful as the case of UPM,” says Jacob Michaelsen, Nordea’s Head of Sustainable Finance Advisory.

However, there are various concrete steps companies can take to convince investors of their commitment to green values. In November, UPM published its Green Finance Framework, with the aim of deepening the integration of the company’s Biofore strategy in its financing. Just one week later, the company issued a EUR 750 million Green Bond under its Medium Term Note programme. In March, UPM linked the pricing mechanism of a syndicated revolving credit facility (RCF) to both biodiversity and climate targets, becoming one of the first companies in the world to do so.

Kenneth Råman, SVP, Treasury at UPM, says that the frameworks are based on standards established by The International Capital Market Association (ICMA). The aim of ICMA’s Green Bond Principles is, in its own words, to “provide issuers guidance on the key components involved in launching a credible Green Bond; aid investors by ensuring availability of information necessary to evaluate the environmental impact of their Green Bond investments; and assist arrangers by moving the market towards standard disclosures which will facilitate transactions”.

“In general, responsible financing refers to all financing that supports sustainability and responsibility,” Råman notes. “Technically they can be handled in various different ways, such as loans in which margins are tied to environmental performance, but they all share the same goal of promoting sustainable operations.”

Sustainability comes naturally for UPM

At UPM, the Green Eligible Assets and Projects include six categories: sustainable forest management, climate positive products and solutions, pollution prevention and control, water and wastewater management, energy efficiency initiatives and renewable energy. All goals and targets are in line with the UN’s Sustainable Development Goals, and UPM’s performance and progress are reviewed and reported annually.

Råman emphasises that UPM has a wide variety of green and sustainable projects, due to the nature of its operations.

“The reason for choosing this path was that for UPM it’s really a natural route to take,” Råman says. “Sustainability plays such a central role in the company’s strategy that it’s not even a strategy in itself but an integrated part of all operations, including financing.”

The framework is verified by a second opinion provider, which in this case was CICERO Shades of Green. Based on its review, it rated UPM’s framework CICERO Dark Green, which is the best available rating.

Nordea acted as an advisor in the establishment of the framework alongside CICERO Shades of Green. For Michaelsen, the overall experience of the project was overwhelmingly positive. He says Nordea is proud to have acted as the sole structurer of the framework, adding that he found Råman and his team both pleasant and friendly to work with and knowledgeable.

“They really know the company inside out to the very detail and nuance,” he describes. “Every possible question we had was answered if not on the call, then very quickly afterwards.”

This, according to Michaelsen, might be something many other companies have problems with.

“In some cases, be it due to the lack of motivation or strategic commitment, companies might struggle to find their assets to issue green bonds,” he notes. “In the case of UPM, because they are so thorough with their commitment and dedication to sustainability, we decided to leave out things that normally could have been included. I am not surprised to see the transaction being as well-received as it was.”

Investors want profitable greenness

For companies, responsible financing isn’t just another feelgood factor. Both Råman and Michaelsen point out that communicating greenness makes financial sense as well. This is because it can have a positive impact on pricing, acting as a further incentive for companies to go greener.

Michaelsen adds that green bonds help companies communicate their story to shareholders and act as an indicator of commitment and transparency. However, he doesn’t think responsible financing can only be looked at as something that companies benefit from.

“Benefit or not, it’s just part of business and life now, creeping through every nook and cranny,” he says. “You can see regulation increasing and investors’ expectations growing. Yes, a green bond can get you better pricing and lower your funding costs, which is a pretty good argument, but to a certain extent it’s also a hygiene factor: you need to be futureproof and responsible financing is a tangible way of demonstrating that.”

Both Råman and Michaelsen mention that investors are still looking for profit. Mere greenness isn’t a value; there must be a financial return to it, too. Michaelsen points out that green bonds have been seen to outperform non-green ones.

“Also, if you’re an asset manager and your client is telling you that they want sustainable and green bonds, then you don’t have a choice – and that is becoming increasingly common,” he confirms.

Råman says that investors tend to be first and foremost concerned about credit risk. The impact on greenness depends on the investor: for some it is a requirement, while others still focus purely on credit and most are in between.


A loan being green always has an increasingly positive impact.”
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