L&T adds ESG targets to residual tenure of BofA loan

Mumbai: Larsen & Toubro, the $23-billion engineering to information technology conglomerate, has introduced environmental, social and governance (ESG) goals into the remaining tenure of one of its loans from Bank of America (BofA), essentially agreeing to pay a higher rate in case it does not meet its water usage and greenhouse gas emission targets in that period.

The $150-million loan, due in 2025, has a residual maturity of about 2 years, which will now be linked to the company's ESG arges.

"A higher interest rate will be charged on the residual maturity of this loan in case the company does not meet its sustainability targets,” said Shankar Subramaniam, India head, corporate banking, BoFA. “By converting this existing loan transaction to a sustainability linked loan, the company is showcasing its serious

intent on achieving its sustainability target to investors and all other stakeholders."

BoFA was the sole lender to the company.

The proceeds of this foreign currency loan were used for the company's capital expenditure purposes.

The company said in a statement that the transition of the existing loan to a sustainability linked loan (SLL) is based on targets core to the company’s business.

Group CFO R Shankar Raman said L&T is focused on achieving water neutrality by 2035 and carbon neutrality by 2040. "This transition to SLL with Bank of America is yet another step in that journey and underlines our intent on the ESG front," he said.

This is the second time in about seven months that L&T has inked a SLL loan deal. In November, the company closed a three-year $107 million SLL from Sumitomo Mitsui Banking Corp (SMBC). It was a fresh loan that also incorporated interest rate reductions linked to the achievement of reduction in greenhouse gas emission and water consumption.

Norway-based registrar and classification firm DNV has provided certification for both these loans.

"Linking an existing loan to a sustainability target could potentially widen the company's investor base which will benefit the company in the long run," Subramaniam said.

The company aims to achieve carbon neutrality by 2040, ahead of the Paris Agreement deadline of 2050, which means reducing emissions and absorbing greenhouse gases from the atmosphere. It also aims to achieve water neutrality by 2035 which involves reducing water usage and creating new supplies of water.