On June 10, 2020, CEE Legal Matters reported that Allen & Overy and Gedik & Eraksoy had advised on an ESG-linked syndicated loan facility for Turkey’s Garanti BBVA. We spoke to Ebru Dildar Edin, Executive Vice-President at Garanti BBVA, to learn more about the facility.
CEELM: Can you explain to our readers what an ESG-linked syndicated loan is, compared to a standard syndication facility?
Ebru: We have taken the process a step further by adding some sustainability KPIs to our standard syndication facility. In recognition of this aim, the facilities will include a sustainability-linked margin adjustment, [in which] the margin will be determined according to our performance against the relevant KPIs over the life of the facilities. Our short-term ambition is to maintain a zero percent share of coal power plants in our project finance greenfield electricity production portfolio and to source at least 80% of our energy from renewable sources in an effort to reduce Scope 2 GHG emissions.
CEELM: What would you say were the most complex aspects you had to deal with in terms of this loan?
Ebru: Fitting the margin mechanism and test days were the most complicated points for us. However, we also found solutions at these points by considering the investors' expectations. The proposed ratchet sets out a margin adjustment based on KPI figures in a given testing period (each quarter) compared to the targets set. We will publish its results on a quarterly basis on our website and provide limited assurance from a third party.
CEELM: This was the first ESG-linked loan in Turkey. What were the hurdles you had to overcome, in the absence of a precedent in the country?
Ebru: We strongly believe that operating sustainably is a key driver to the long-term success of our bank, and we aim to be a leader in introducing and implementing sustainable banking in Turkey. As it is a new structure, we received many questions from investors regarding this mechanism. In order to address all the questions, we organized a sustainability-focused investor call with the presence of our ESG experts.
CEELM: According to Allen & Overy, this is the world's first ESG-linked loan for a bank. Do you expect others to follow suit?
Ebru: Sustainability issues are gaining importance all around the world and Turkish society, and are increasingly impacting the banking sector. Firsts are always unknown and we eliminated this obscurity. Therefore, we believe that others will follow.
CEELM: We know Allen & Overy advised Standard Chartered Bank and Bank of America as the arrangers. Did Garanti use any external counsel for this?
Ebru: We did not use any other external counsel for the ESG mechanism. Bank of America acted as sole sustainability coordinator in connection with the facility. Our experienced sustainability team and Bank of America worked together for this issuance.