DBS Bank Taiwan (星展銀行) has inked a NT$2 billion (US$63.57 million) loan agreement with AU Optronics Corp (AUO, 友達光電), with interest rates set to move lower next year if the panel maker’s sustainability performance improves, the bank said yesterday.
The loan is the first sustainability-linked loan in Taiwan, DBS said in a statement.
The core value of a sustainability-linked loan is to provide an effective incentive for companies to advance their environmental, social and governance (ESG) programs, DBS head of institutional banking group Tony Luo (羅綸有) said in the statement.
Companies hoping to apply for a loan would be evaluated by an independent third-party agency based on the applicant’s ESG performance, Luo said.
If the results of the review meet or exceed the ESG targets set by DBS, the borrower’s interest rate would be reduced, Luo said.
In AUO’s case, DBS has set the targets after discussions with the company and would check if the borrower meets those targets next year, the bank said.
Given that AUO has already performed well in terms of corporate governance, environmental sustainability, science education, culture preservation, social citizenship and inclusive workplace, it would be hard for the company to make a big leap, so DBS has set reasonable objectives, it said.
As the first in Taiwan to sign a sustainability-linked loan, AUO is cementing its commitment to adopting a sustainable approach to business operations and being a role model for Taiwanese companies in this area, DBS Taiwan general manager Lim Him Chuan (林鑫川) said.
AUO has been listed on the Dow Jones Sustainability Index for nine consecutive years and has ranked among the top 5 percent in the Taiwan Stock Exchange’s corporate governance evaluation, Lim said.
There is a growing trend for companies to adopt more sustainable practices in their business operations, he said.
By launching a sustainability-linked loan in the nation, DBS hopes to encourage more customers to build businesses that will have a positive impact on the future, he said.
Unlike green loans, which are used to finance or refinance eligible green projects, capital from sustainability-linked loans can be used for general corporate purposes, which provides more flexibility to borrowers, DBS said.
The Singapore-based bank last year inked four sustainability-linked loans totaling more than S$600 million (US$435 million), demonstrating the bank’s commitment to sustainability while offering financial innovation to customers, it said.
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