Is 2021 the Tipping point for ESG Lending in mining finance?

‘Environmental, social and governance’ was a hot topic at this year’s Diggers and Dealers.

ESG matters are increasingly front and centre for the boards of resources companies, as they face mounting pressure from shareholders, employees, funders and governments.

The public response to the events at Juukan Gorge demonstrates the high level of scrutiny mining companies are experiencing.

As part of business, mining companies in Australia are now:
- improving their water and energy efficiency;
- prioritising sustainability and conservation;
- increasing their standards of ESG reporting; and
- delivering higher levels of accountability than ever before.

The work that resources companies are doing also means that they are well placed to enjoy the benefits of ESG loans.

ESG loans incentivise the borrower to hit performance targets agreed with the lender that are aligned to certain ESG principles (such as carbon neutrality, increased energy efficiency or improved social engagement activities). For example, if a mining company meets its ESG targets, the margin on the loan may be reduced. In short, ESG loans reward good ESG behaviour (and may penalise poor ESG behaviour).

As banks and mining companies stand to both gain from this novel form of lending, we pick 2021 as the year that ESG loans will find its place in mining financing in Australia.

Wright Legal are well placed to assist mining companies considering incorporating an ESG loan into any financing solutions. Reach out to a team member if you would like to discuss this topic further.

Wright Legal is WA’s only law firm specifically dedicated to banking and finance