Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Welcome to the Business Plan for the Planet podcast, a series centered around ESG insights.
Speaker: In these episodes, you'll hear from experts whose work is at the heart of sustainability linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
Speaker: Join us as we shine a spotlight on their commitment to a sustainable future.
Speaker: Hi, I'm Kelly Fisher calling in from New York City, and I'm the head of corporate sustainability for HSBC in the US.
Speaker: Thank you so much for joining us.
Speaker: Today we're talking to two very different companies.
Speaker: Mercon Group is a company with a business plan for sustainable coffee.
Speaker: While C-SPAN is the owner and operator of one of the world's largest shipping fleets, a method of travel that is actually the most fuel efficient for container cargo.
Speaker: Both Mercon and C-SPAN have also taken first of their kind steps into sustainable finance.
Speaker: Hi Juan Pablo, hi Matt.
Speaker: We're so glad to have you here today.
Speaker: So let's start with Mercon Juan Pablo, a company whose stated purpose is to build a better coffee world.
Speaker: I love that.
Speaker: You're a leading green coffee supplier, which if I understand it correctly means
Speaker: that you're invested from every level, from the farmer all the way to the consumer.
Speaker: Juan Pablo Ibarra is the COO at Mercon, and you're here to talk to us about that purpose and about the first coffee only green revolving credit facility and the first in the US, which the company did in 2019, which at the time was kind of unusual and really showed that you were leading.
Speaker: Over at C-SPAN, an ambitious ESG strategy has been laid out by the parent company Atlas, committed to being a leader in the container shipping and energy industries.
Speaker: They follow a robust set of ESG targets.
Speaker: Matt Boris, treasurer and head of capital markets at Atlas Corp has joined us to tell us more and talk about its syndicated sustainability link loan facility, the first of its kind in the container ship industry.
Speaker: To me, the fact that both of you are in finance and operational roles rather than in the sustainability department is a sign that your companies are leading on this.
Speaker: That's always an indicator of success to me when I speak to our clients.
Speaker: So we're so appreciative to have you here today.
Speaker: So getting started, let's first talk a bit about your broader ESG strategies.
Speaker: Matt, if you don't mind, I'd like to start with you first.
Speaker: What are your ambitions and targets for the next five years?
Speaker: Yeah, thanks, Kelly, and thanks for having us.
Speaker: So first, just to provide a bit of context on what C-SPAN is, we're the largest owner and operator of container ships in the world.
Speaker: So we operate the vessels, we lease them out to some of the largest container ship liners in the world, so Maersk, Capag, Lloyd.
Speaker: So you can kind of think of us as a pipeline for the sea.
Speaker: and we own the pipeline and operate the pipeline, what flows through that is the responsibility of the global liners.
Speaker: So that's important for how we think about what we can control within ESG.
Speaker: And like many other companies, we've been tackling components of ESG for some time, but really informally.
Speaker: You try to reduce, you try and maximize safety.
Speaker: So reduce lost time, injury, frequency, reduce the amount of disposable bottles versus reusable bottles, things like that.
Speaker: But recently we've been coming together and kind of formalizing that strategy as ESG has become more of a formal thing.
Speaker: So we spent a lot of 2020 and 2021 now
Speaker: coming together cross-functionally across the organization to discuss what that formal strategy will look like.
Speaker: You know, right now you have each kind of
Speaker: Silo has been executing on aspects of it for years, but bringing that together and near term or in our first year, our goals are modest.
Speaker: So we have our inaugural ESG report coming out this year, and that will set out our strategy, how we look at things and our objectives.
Speaker: And then long term, we want to be a leader in the space.
Speaker: We see the environmental component as the area where our strategy crosses with our ESG strategy, our operational strategy crosses over with our ESG strategy and provides us the best opportunity to kind of make this a competitive advantage and core competency.
Speaker: So we want to be a leader on the environmental side.
Speaker: And what that means is continuing to create leading edge designs of vessels that reduce the emissions and improve the efficiency and continuing to kind of improve the global fleet emissions over time.
Speaker: That's great.
Speaker: And I'm so excited that you're doing that work right now because I think if we can do this conversation, I'd love to get some even more threads on what you guys are planning to announce in that report.
Speaker: I think that's great.
Speaker: And Juan Pablo, I mean, Mercon over 60 years, right?
Speaker: You've seen an evolution of what ESG means to you.
Speaker: What is that?
Speaker: What is ESG to you right now at Mercon and how does that differ?
Speaker: Maybe does it differ from what it was in the past?
Speaker: Thank you, Kelly.
Speaker: It's great to be here.
Speaker: It's
Speaker: Great to be able to share with everybody what Mercon has been doing.
Speaker: And to your point, the focus for Mercon is on the global supply chain of coffee.
Speaker: And if you think about that supply chain, at the start of that supply chain is a producer of coffee.
Speaker: And there are different types of producers.
Speaker: Over the years, some of these producers have been able to improve their farming technology with this, their productivity, their environmental and their social aspects.
Speaker: However,
Speaker: there have been in some parts of the world, in areas like in Central America, some small producers that have not been so fortunate.
Speaker: And they still have a long ways to go.
Speaker: And these small farmers generally produce very high quality of coffee, which is at risk of not being sustainable if the living income and the standards and the economics are not in place for these farmers.
Speaker: So we have put in place a lot of
Speaker: programs and we focus a lot on the need to support that small farmer so that they cover their environmental solution, their social solution in their communities.
Speaker: But of course, there has to be an economic component so that their business is sustainable.
Speaker: And for us, what is really at the end most important is that the ultimate consumer of coffee, right, which has been demanding for many years more coffee, people are drinking more coffee,
Speaker: love coffee, but that they understand that the good and the premium coffee really is sourced from certain areas where coffee is very difficult to grow.
Speaker: And for them to understand the impact that a truly sustainable coffee supply chain can have on the living income and the standards of living and the standards of sustainability for these producers.
Speaker: That's great.
Speaker: And by the way, I forgot to tell you this.
Speaker: I was on the phone a week ago with a regenerative agriculture nonprofit that we're working here with the U S and the woman actually said to me, have you ever heard of this company called Mercon coffee?
Speaker: They're my example for what exactly what I point to when I say regenerative agriculture and, and,
Speaker: that sort of farm to customer work.
Speaker: And I was like, well, funny, you should mention that I'm going to be talking to him in a week.
Speaker: So I, you started to allude a little bit to this one Pablo, but I'd like to hear from both of you.
Speaker: And why don't we start with you, Matt?
Speaker: What is driving this?
Speaker: Because to me,
Speaker: when you unpack an ESG strategy that is as comprehensive as both of you have going at your companies, it really comes down to who are the drivers, who you're trying to serve?
Speaker: Is it investors?
Speaker: Is it customers?
Speaker: Is it, you know, your employees, your executives, media?
Speaker: So Matt, maybe if you don't mind starting, I'd love to hear from you on that.
Speaker: Yeah, I think it comes from...
Speaker: More particularly in the last few years, it's come from a lot of sides.
Speaker: The investor community has been increasingly demanding an ESG component.
Speaker: And I think, you know, to start, the standards have been relatively low.
Speaker: It's, you know, do you have a formal strategy?
Speaker: Are you thinking about this?
Speaker: Are you doing something about it?
Speaker: creditors are looking to sort of set up metrics to gauge ESG and grade you against it in the container shipping industry.
Speaker: The Poseidon Principles was created by creditors, by lenders to sort of formalize the metrics by which you're measuring emissions, by which you're graded against.
Speaker: so that it could increasingly over time be a bigger component of their underwriting.
Speaker: You of course have, you know, our customers have always really demanded
Speaker: fuel efficient vessels we created about a little over 10 years ago.
Speaker: We started a program to create some of the most environmentally friendly vessels in the industry, reducing emissions by about, carbon emissions by about 25%, and have carried that forward.
Speaker: So there's a bit of a competitive drive to do that.
Speaker: And then, you know, some of it is just your management teams
Speaker: views on the world and what's important and what's a strength and, you know, where the benefits worth the cost.
Speaker: So it really comes from everywhere.
Speaker: And Matt, you know, I don't want to put you on the spot, but do you think that there needs to be slightly more of a push for, you know, because you mentioned investors, for investors to value a company that's on its journey rather than one that's purely green?
Speaker: Because I think we've seen...
Speaker: an enormous increase in investor attention, obviously in oil and gas, but other industries.
Speaker: Is that something that you think should be valued a little bit more highly?
Speaker: A company that is in an industry that needs to transition and then a company that in that sector is leading in doing that transition work.
Speaker: Yeah, I definitely do.
Speaker: I think there's a huge focus right now on
Speaker: on products or end products that are green.
Speaker: But you could take, you know, an electric vehicle and, you know, view that to be a green product.
Speaker: But let's look at the whole, you know, supply chain throughout that, you know, certainly came as well as the materials for that came through a container ship.
Speaker: Container shipping right now carries 90% of the value of global goods.
Speaker: And, you know, of course there's a broader transport supply chain that connects from raw materials to end product or for whatever it might be.
Speaker: So we need to not break apart the supply chain or break apart the machine and identify some products as green and some as not green, but a more holistic view to,
Speaker: to what is being done behind the scenes to achieve end goals,
Speaker: And transition solutions are a big part of that.
Speaker: So a capital intensive industry like energy or like shipping is not going to be carbon neutral overnight.
Speaker: There's going to be a long-term transition and you wouldn't want it to be green or carbon neutral overnight because it would mean that you're scrapping tons and tons of vessels and pipelines and everything, which at the end of the day, wouldn't be green.
Speaker: But there needs to be, I think, more of a pragmatic focus on funneling capital towards those who are doing things right within those spaces to drive carbon emissions down over time or GHG emissions down over time or on the social governance sides as well.
Speaker: And I think the sustainability-linked financing is a great thing for that because
Speaker: you're able to pick your own KPI.
Speaker: And as long as you work with a second party opinion provider and it makes sense, there's a lot of flexibility there.
Speaker: So for example, you don't have to, with a green bond or green loan, for example, you may have to buy something that is carbon neutral.
Speaker: But if it's sustainability-linked financing, you can say, we're going to execute on our plan and we're going to reduce GHG emissions by 25% by the end of the year.
Speaker: And how you do that can be a combination of things.
Speaker: It could be certain people focused on certain things, reductions throughout the platform or the company.
Speaker: So it provides you a lot more flexibility to get at what
Speaker: at where we're trying to go, a carbon neutral world and one that's ESG forward in, I think, the right way.
Speaker: Yeah, no, I love that.
Speaker: And I completely agree with what you're saying about looking at the whole picture rather than a pure green product or one pure green element.
Speaker: I think that's amazing.
Speaker: Juan Pablo, who's driving your strategy?
Speaker: I mean, you've already spoken a little bit about the farmers in a way that I thought was incredibly moving, but who's driving your strategy at Mercon?
Speaker: Thank you, Kelly.
Speaker: You mentioned at the beginning that Mercon is a company
Speaker: that strives to build a better coffee world.
Speaker: And it truly is our massively transformative purpose.
Speaker: It is our purpose to try to build a better coffee world.
Speaker: It's the essence of who we are.
Speaker: And I really would say sustainability for us has been something that has stemmed from this passion to try to make things better as we understand the realities of the coffee supply chain.
Speaker: Right?
Speaker: So, so this is really our, our guiding principle.
Speaker: Everything stems and, and, and begins there.
Speaker: And if we think about the effects that that has, it naturally makes us look for the clients that value sustainability, the products that have a good sustainable component and value across it and how that is perceived and, and, and, and what is demanding that.
Speaker: But, but of course, every single, uh,
Speaker: stakeholder along all of our chains.
Speaker: So when we think about financing, for example, we naturally started looking for sustainable financing about four years ago and started to explore what could be done and how we could better align some of these additional areas of work that we're doing with our sustainability programs with all of our commercial activities.
Speaker: So we're trying to align it with what our customers demand and with what all of our stakeholders in the chain are doing.
Speaker: So the banks play a key purpose on it.
Speaker: And we have grown over time to build our KPIs for the sustainability-linked revolver that we had that you mentioned.
Speaker: It's the first one in the U.S. that came in 2019, the first one in coffee.
Speaker: And it was a new concept, but it's nothing different than a green bond, except on a revolving credit facility.
Speaker: We have our sustainability incentives that if we meet, we obtain a small discount.
Speaker: That small discount gets directly reinvested into the programs that we've agreed that actually drive the ESG KPIs that matter.
Speaker: And so far we've been focusing
Speaker: like I said before, a lot on the supply chain and on the impact to the producer to making sure that the coffee meets good environmental standards, that the social component is met, that there's no child labor, but that we, of course, try to invest in the communities to make the communities for growing coffee better and sustainable over time.
Speaker: And of course, on the economic front, so that the production can be of high quality and can be
Speaker: productive enough to be economically attractive to the producer.
Speaker: And, you know, both of you were drawn early on, I think, to this new thing of sustainable finance, new products.
Speaker: If you had to explain Juan Pablo to one of your children, what a sustainability link loan is, how would you describe it?
Speaker: Well, that's a great question, Kelly.
Speaker: I think I would make it akin to
Speaker: having a friend that you like versus a friend that is kind of distant to you.
Speaker: So you could have a friend where you have things in common and do things with a friend where you have things in common and you do things that you mutually like and that you mutually appreciate.
Speaker: And that's how I would explain it.
Speaker: We work with the banks that value the sustainability work that we are doing in our supply chain and are willing to invest in it if we do the right work.
Speaker: I love that description.
Speaker: And Matt, you know, you guys were also drawn to this early on and now we're seeing it really taking off.
Speaker: What was it about this?
Speaker: I mean, you talked a little bit before, but what was so appealing about this type of sustainable finance for Atlas?
Speaker: Yeah, I think when we learned about the concept of sustainability-linked financing, it seemed well aligned with
Speaker: where we're trying to go and looking to do things the right way.
Speaker: I mean, we've been a leader on the environmental side, on the safety side for 10 plus years.
Speaker: So we wanted to find a way to incorporate that and our goals into our financing.
Speaker: And, you know, it may seem daunting, the concept of it may seem daunting to newcomers, but really, if you're a company that's already doing these things, it's likely that you already have a lot of the information and materials ready, and it's just,
Speaker: pulling it together from across the organization into a public or into a usable format.
Speaker: So that's kind of how we came at it.
Speaker: And I think the real thought that took a lot of time on our side and for any issuer should take a lot of time and thought is the KPIs, which are the core of, you know, it really makes what is sustainability-linked financing what it is.
Speaker: It's how you measure success.
Speaker: So for us, luckily, how we came at it at first was looking to the Poseidon principles, which is the industry, the lenders throughout the industry have created this
Speaker: measure and a metric is already established for how we're going to measure emissions and how we're going to compare across industry.
Speaker: So that seemed like a great starting metric for us.
Speaker: The second was we had two KPIs in our first sustainability link loan.
Speaker: So emissions was the first.
Speaker: The second was more of a supply chain approach, which was interesting for us.
Speaker: So we reward or the KPI is based on us incorporating into our contracts a sustainability pain gain share sort of thing.
Speaker: So if our customers are operating in an environmentally friendly way, we reward them.
Speaker: And if they don't, then they sort of reward us or we penalize them otherwise.
Speaker: And that, you know, that drives alignment throughout the supply chain so that what our customers do flows through and the pricing impact that we receive is effectively in part flowed through to our customers.
Speaker: So that was our way to link it together.
Speaker: And
Speaker: So our first loan was late last year, late 2020, and was about 250 million.
Speaker: That was sort of our first test run of the KPIs and how this all works.
Speaker: We found it was pretty seamless, and we've since expanded it across our $2.5 billion portfolio.
Speaker: sort of cornerstone secured financing.
Speaker: And interestingly, we just closed 500 million with US private placement investors.
Speaker: So these are life insurance companies that we're also interested in the same things and we're keen to participate.
Speaker: So we received a lot of interest and a lot of demand based on that.
Speaker: And it also spreads the impact across the broader region.
Speaker: What were the internal discussions at Mercon that made you decide?
Speaker: Cause you were so early in this, made you decide, yeah, we're gonna roll the dice and try this cause we think there's something important here.
Speaker: Thank you, Kelly.
Speaker: We were really looking for additional suppliers, let's say within all of Mercon to help us in this journey.
Speaker: At the very core of the issue that we have in the supply chain
Speaker: is the sustainability of the farmer, like I stated at the beginning.
Speaker: So we established a program at Mercon that we call LIFT, and it's a multi-year educational and technical support program that works directly with the farmer in order to help that farmer become more productive, become more technified, and produce even higher quality product.
Speaker: So this
Speaker: this program takes a lot of resources, right?
Speaker: And some of the support started to come from our customers that would support having a Lyft certified coffee that they would sponsor.
Speaker: However, we soon found that some of the banks were very interested in the social programs that we were doing in some of these coffee communities.
Speaker: We work very closely with Seeds for Progress Foundation, which invests
Speaker: in the public schools and in the education of the teachers for these public schools to make the schools truly good.
Speaker: So we invest also in the infrastructure, bring up the infrastructure, ensure that the programs, the technology and the teachers are good.
Speaker: And we want to make sure that children get a good education.
Speaker: If they get a good education, they're much more likely to remain over time in the coffee business, remain in their community and make these communities prosper.
Speaker: Right.
Speaker: And so
Speaker: We saw the sustainability link loans with all of the indicators trying to do the work that we're advancing with our technical support team on the supply chain linked to incentives that could be directly reinvested into the social programs like Seeds for Progress and therefore making it a closed circle.
Speaker: And our banks really love that story.
Speaker: It was a way to connect our needs with something that they were willing to invest in.
Speaker: And I love that because I think the public is a bit fatigued of commitments with lack of action.
Speaker: And that's what I see day in and day out looking at these sustainability-linked loans is I see a real action around the environmental side, you know, GHG emissions, but I'm also seeing all the stuff that you're talking about.
Speaker: I'm seeing real social goals, real diversity and inclusion goals,
Speaker: And they wouldn't be in there if your companies didn't think that you were going to address them.
Speaker: And that's really powerful.
Speaker: Well, we need to wrap up.
Speaker: Unfortunately, it was an incredibly brief conversation, but incredibly full of information.
Speaker: I want to thank both of you so much and everyone who attended.
Speaker: And a couple highlights for me is I hear from both of you that you're not focused on one stakeholder.
Speaker: I think that both of you and both of your companies seem to be focused on a myriad of stakeholders all at once in very thoughtful ways.
Speaker: So that would be something that I would share as a recap for all of us.
Speaker: And you're driving for success ahead of there being things
Speaker: pushing or demanding it of you.
Speaker: That's what is a leader.
Speaker: That's what defines a leader, right?
Speaker: Both of your companies were willing to investigate a new way to make sustainability happen before it was the norm.
Speaker: And I think that's really admirable.
Speaker: And I love that a good business plan of any kind actually probably should be a business plan for the planet, for the people who are on it.
Speaker: And that I thank you very much for being leaders out on realizing that and addressing that.
Speaker: This has been a really special event for us.
Speaker: I'm so grateful.
Speaker: And I just want to thank you again, Juan Pablo, on that.
Speaker: Thank you.
Speaker: This has been a special podcast in the Business Plan for the Planet series.
Speaker: More episodes will follow shortly, so please do keep an eye out for those.
Speaker: For more information on the programme, visit business.hsbc.com forward slash sustainability.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
