Corporate Finance Vertical Farming

Japan’s first vertical farming sustainability-linked loan signed

Spread Co. achieves 1st Sustainability Loan in Japan

Spread Co., Ltd. has secured a sustainability-linked loan for $4.6 million, becoming the first vertical farming company in Japan to do so. The loan incentivizes improvement in sustainability performance by linking interest rates and other lending conditions to sustainability targets. The loan defines Sustainability Performance Targets based on the company’s business strategy, including a 30% improvement in labor productivity and maintenance of energy consumption levels. This loan is a significant step for Spread in demonstrating its commitment to ESG management and promoting sustainable practices.

Spread Co., Ltd. has made headlines by becoming Japan’s first vertical farming company to secure a sustainability-linked loan. The company, based in Kyoto, specialized in vertical farming using artificial lighting and signed a loan agreement with the SHIGA BANK, LTD. for $4.6 million (600 million yen).

Sustainability-linked loans (SLLs) are loans linked to the borrower’s sustainability performance. The loan is designed to incentivize the borrower to improve its sustainability performance by linking the interest rate and other lending conditions to achieving sustainability targets.

For Spread, the SLL defines Sustainability Performance Targets (SPT) based on the company’s business strategy and links lending conditions such as interest rates. For example, the spread has set two SPT for the loan: Improvement in the labor productivity at its vertical farms by 30% (in comparison with FY 2018) and maintenance of energy consumption per production volume at the level of FY 2021.

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According to Masaki Kushiro, the General Manager of the Corporate Planning Department at Spread, this loan will be a big step in promoting the expansion and effective use of indirect financing. He believes that Spread is expected to keep contributing to environmental and social issues as a vertical farming company. By announcing some of the tasks that the company is working on and linking them to economic conditions, the loan allows them to express their intention to achieve corporate growth and social contribution in parallel.

To comply with the Sustainability Linked Loan Principles outlined by the Loan Market Association (LMA), Spread’s loan has been confirmed and obtained a third-party opinion by the Rating and Investment Information, Inc. (R&I), one of the major credit rating agencies in Japan. In the second opinion, R&I mentioned various issues that agriculture faces in the modern world, including a decrease in agricultural workers’ number due to an aging population and lack of successors, climate change, environmental pollution caused by pesticides and fertilizers, food security problems due to international conflicts, and how Spread strives to provide a solution through vertical farming technology.

However, R&I also highlighted some issues faced by vertical farms, such as high operational costs, and stressed the importance of maintaining a high operating rate while reducing costs when operating a vertical farm. In this context, both SPT set by Spread were deemed “challenging” but suitable for a sustainability-linked loan.

The loan is a significant step for Spread in demonstrating its commitment to ESG management. It will also encourage other companies to pursue sustainability-linked financing to promote sustainable practices in their industries.

Image provided by Spread Co., Ltd.

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