Australia's first green and social loan

Nick Adkins Over the past three or four years, one of the biggest trends in the Australian market has been the focus on sustainability and the adoption of sustainable finance to embed sustainability throughout a business. And one recent project stands as a prime example of that.

I'm very pleased to be joined by Di Mantell, CEO of Celsus, the holder of the PPP concession to build and operate the Royal Adelaide Hospital, which is one of the largest and most advanced hospitals in Australia. Di, thank you for joining us.

Di Mantell Thank you for having me.

Nick Adkins Allens is very proud to have been alongside Celsus since the very beginning, having acted for the lenders to Celsus on the original $2 billion project financing in 2011 and on subsequent resets and refinancing since then, including one of the first green and social loans in the Australian market, which was completed in 2021.

Today, we have the opportunity to talk to Di about the sustainability journey that Celsus has been on and understand how the use of sustainable finance has made an impact on the hospital project.

Di, can you tell us when did sustainability first enter the mindset of Celsus and what drove you to put in place the green and social loan in 2021?

Di Mantell Celsus first considered a green and social loan in 2021 when we did our first full refinancing. Initially we started doing a normal regular refinance deal. But as the Asia Pacific Loan Managers Association rolled out the green and then the social loan principles in April and May 2021, then a couple of our board directors thought that that was worth us considering as a way of refinancing.

To do that it meant that we had to look deeply into what that meant for us and where we would go. It's great being first, but then you need to explore what the opportunities are, what the workload is, and what's required to actually achieve a loan like that.

Nick Adkins And what was involved from Celsus’ perspective in putting in place the green and social loan?

Di Mantell We already had a number of advisors in place to do a normal refinancing. So we had the financiers on and we had Allens engaged. We had a board of directors with the refinancing committee set up. And we had a range of consultants engaged, noting that we had to do tech due diligence this time around.

But for us, it meant that we had to look at what was different about it. What do you require to do to actually achieve a green and social loan? And one of the largest things that was required was to actually have a green and social financing framework.

And then you also had to get that assessed by an independent assurer. So for us, we had to be really clear about what was going to be included, what that would look like, and then who we would go to market for to get that assured.

Nick Adkins Yes, great, and what does sustainability mean to Celsus, and what initiatives have you put in place as part of your green and social loan framework?

Di Mantell So what it meant for Celsus was basically building on the base that we have of being a four star, green star rated Green Building Council of Australia hospital. But in addition to that, we clearly needed to look at what could we measure and what could we monitor and what could we commit to doing going forward.

I should first say that within our contract itself there was nothing more than an environmental management plan required. So anything we were going to do was going to be quite different. And we did have a very financial focus on what we were looking at.

But for us, it meant that we had to consider how we would put all of those things together.

And so what we developed was a green and social finance framework. Again, being first is very cool. Not being able to copy off somebody else – not quite so cool.

So for us, we had to develop a green and social finance framework and even though we had a number of advisors on board, again, because no one had done one, it basically fell to the exec team to sit down and write it. And I can still recall sitting on my lounge room floor writing up a green and social finance framework.

We had to be very clear that we met all of the principles, because if we were going to do it, from a reputational point of view, it was very important, certainly to myself and the board, that we got it right and that we could validate any claims that we were putting forward.

Nick Adkins And often with green and social loans, there’s a big focus on the environment and climate.

But what about the S and G in ESG? What social and governance initiatives has Celsus put in place as part of its plan?

Di Mantell

It's correct. The ESG is very focused usually on environmental and, in our case, we looked at developing, subsequent to the green and social finance framework, we developed an ESG framework.

And what I was really clear on was that we had to give the same amount of time and attention to the E, the S, and the G. It is very different, and I would like to commend our Celsus board for this. It wasn't something they had considered previously.

So for us saying, ‘We were now going to have an ESG framework, and we’re going to have a green and social finance framework and we're now going to look at things differently’, we needed to look at that long and hard.

And for us, because we don't have any contractual obligations, as I said, past the environmental management plan, whatever we were going to do, we needed to look at how that applied across the contract without crossing over on any boundaries. So for us, the S and the G, we looked at the social principles that we had from the Asia Pacific Loan Managers Association, and then for the G component, we looked at what governance was required.

Nick Adkins So, what policies and components were required to have a framework around it.

Di Mantell So in developing the ESG framework, that gave us a real structure, which went to the board and they endorsed that. And then we had components under each E, S, and G that we would look at rolling out over the next 12 months to three years. And that's been able to keep us on track for where we're going.

So it's great to get excited by a new shiny ball over here or something that's new and different. And sometimes they can certainly be accommodated, but your general structure needs to follow the path that you've originally set. So for us, looking up social principles required us to be able to manage and monitor what were the specialties that we provide.

We provide health care for a really diverse range of people. So, culturally and linguistically diverse, Indigenous First Nations people. We're a quarternary facility, so we run facilities that are statewide services. So all of those things got picked up in the social component.

But then we looked at what else we could do. And because we don't provide clinical services, the state does, it was how we could get engagement in the community for social-type entities.

And some of the things we've done is we've engaged with the Hutt St refuge centre, which provides support for people experiencing homelessness. So we do a project called ‘Walk a Mile in My Boots’ each year. And the team do that, so it's not Celsus providing funding to that.

So we go out and source funding and do the walk, and raise awareness about people experiencing homelessness. In addition, we do Jersey Day, which again is aligning and partnering with the clinical team and specifically the transplant and DonateLife team at CALHN.

And then we roll out wearing jerseys one day of the year, the first Friday normally in September, or in this year, the last Friday in August. To raise awareness about organ transplantation and having non-confrontational conversations there.

And our third major project has been sponsoring and being a presenting partner with the State Theatre Company of South Australia, where we sponsor their First Nations program. So to be able to support the Reconciliation Action Plan that we do with CALHN, and also to be able to give back to First Nations people, we enable them to do storytelling.

So for me, being able to do that and provide career pathways and opportunities for people to tell their stories and stay out of health care, hopefully, has been a really positive thing for us to do.

Nick Adkins One of the critical determinants of success for a PPP is often the relationship with the state, as proprietor of the concession, and the general public.

And obviously Celsus has had some difficulties during the construction phase and that relationship has been on a journey.

How has the use of sustainable finance and the focus on sustainability helped with that relationship with those key stakeholders?

Di Mantell I think the relationship with the State Government has been really improved through our sustainable finance and the things that we have done subsequent to that. I think the Government has been really keen for us to partner with them on a range of things, and I think sustainability provides that opportunity.

We're currently in the process of, we've shut down our cogeneration system, which we've done in conjunction with the state, which has taken us from the highest user of gas, in SA Health, to now one of the lower users of gas. And we're currently exploring what those funds might be able to be used for in partnership with the State Government.

And that aligns with what the State Government, both the Premier, Treasurer, Infrastructure Minister and Health Minister, are all looking at about moving to more renewables focus, and less focus on using electricity or fossil fuels. So for us, being able to work with them and bringing opportunities and innovation to the table that they may not have otherwise thought about has been really positive.

Our newest venture is we have partnered with Engie and obtained some funding through the Federal Fuel Fund, through ARENA funding, to build six EV charging stations on site. They're in their final stages of build right now. And this will provide EV charging access for patients, staff and visitors at the hospital.

They’re rapid charging stations. The state would never have thought to have pursued that in this current environment. So for us being able to do those things and provide that additional support and facilities at the hospital, I think has proven a really positive thing.

Nick Adkins Yes, great. And has it changed Celsus’ relationship with its financiers as well?

Di Mantell Has it enabled a more positive discussion with financiers? I think our relationship with financiers has really continued to build over recent years, and I think in 2021, when we did the green and social loan, you need to remember that we did that in the middle of Covid, which was a very difficult time and probably wouldn't recommend a refinancing in Covid.

Nick Adkins Particularly at a hospital.

Di Mantell Yes, particularly at a hospital. For me I think what it did was it provided something new in the finance environment. We're very fortunate, at that point I was reporting to 28 financiers.

Yes.

And I was aware that some of that funding was going back to their own motherland at the time because of Covid. But what it enabled us to do was to provide something different where we made a really serious commitment which aligned with where a lot of the banks were going.

So a lot of banks had committed billions of dollars towards green financing or social financing or sustainable finance. I think us being able to, being a fairly high-profile project, which, as you say, had had a fairly bumpy start, I think we're fair to say, but being able to provide a different way of working going forward.

I think the other thing it did was, first of all, it enabled us to attract twice the amount of funding we wanted. So clearly there was interest in the market for this type of arrangement, which I think was really insightful and really helpful at the time. But I think also then when you choose some green and social loan coordinators, and for the first round we had two.

So we had ANZ and Commonwealth. I think they also stepped forward that little bit more to assist us as well. So they were very keen to make sure that we had the right resources, that we understood what we needed. They kept us abreast of what else was going on in the market.

But even for those who weren't green and social loan coordinators, I think for them, our producing of an ESG report annually to meet our green and social loan commitments, provided them a snapshot of what we had done in the last 12 months. And I think for them being able to report internally and externally, it showed what is possible.

And it's not about getting hundreds of millions of dollars to do extra projects. It's really looking at things quite differently. We've now moved to a really green-lens focus on what it is that we are driving. And I think the banks have appreciated that. And I think the financiers overall have seen what is possible on a site and looking at where you can go with that. I think also because we've moved to doing the global real estate sustainability benchmark or GRESB, which was encouraged by one of our equity providers.

I think having that additional external assurance that what you're doing is right, provides more comfort to the financiers. So I think for them, they're able to see what we've said we've done, but actually getting someone to assess it independently provides that assurance that it is correct. We scored 96 out of 100 last year and got five stars, which we are extraordinarily proud of. We have submitted again for this year and waiting for that to come through but I think also having those sorts of things, it makes you really stay switched on to what you need to do and ensuring that any claims that you're putting out there you're able to validate.

So for GRESB, everything that you say you're doing, you've got to put documentation up to support that. So that means that you've really got to be validating all the way along your path and not just making claims about what you'd like to do.

Nick Adkins Yes, great. And finally, what would you say to other companies contemplating using sustainable finance?

Di Mantell I think everybody needs to look at where they are in their own journey. I think we are very fortunate. We're one of the facilities that everything that moves and wriggles in our building gets monitored. So we've got a building management system that monitors everything and collates the data and makes that data available to us. I'm aware that not everybody has that opportunity, so that certainly makes our journey a little bit easier.

I think, however, it is important to know that when you're reporting in different areas, like we report in the UK and in Europe, and we use metric here, everyone else doesn't. It's a nightmare making sure we're converting the right things to the right measurements.

But I think everyone should look at it, even if it's a small step that you take, to where you're going, I think it makes a difference. I think there's real opportunities to look at everything that you do. We now assess our mods and minor works that we do on site through a green lens. Our life cycle has definitely got a green focus about what we do.

So I think it's everything that you go to consider. Waste management for us is a massive thing. So I think if you're considering refinancing, look at what you are able to do. We're certainly happy to help and support anyone who wants to have the conversation. But I think we owe it to the world, to our children and to our grandchildren, to try and leave the world in a better place. So I think if you have the opportunity to do it better, then you should do it.

Nick Adkins Well, thanks, Di. One of the criticisms of green loans in the market has been that the projects are already designed to meet those criteria, so there's no real additionality in putting in place the green and sustainable finance.

However, one of the things I think is so fantastic about Celsus is you've really embraced that green and social loan framework as a living, breathing thing. And then, I think you used the phrase ‘reimagining PPPs’ and really looking at things you can do to really make a difference, both from a green and social perspective and I think that's really commendable.

So thank you very much for joining us today.

Thank you.