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In Deutsche Bank Research’s Behind the Headlines podcast series with Strategist Jim Reid, Continental’s Head of Finance and Treasury Stefan Scholz emphasised that the Vitesco business in effect “walks the walk” in the company’s environment and social governance (ESG) behaviour.
However, the main challenge is engaging the wider company in ESG accountability. Stolz says, “It is pretty easy when you work in the powertrain business at Vitesco Technologies as they focus on developing the technology for clean mobility, zero emission driving, but others may be a bit more removed. We have to understand the benefit of the company focusing on ESG more than we did in the past so that everybody can feel that they have a connection.”
One way of achieving this is linking financial services costs to ESG key performance indicators (KPIs); a structure that flow reported in the case study of rubber producer Halcyon Agri. Here, the pricing of a US$25m Deutsche Bank loan was linked to delivery on an agreed set of standards in consultation with an environmental consultancy.2
On 4 December 2019 Continental announced the agreement of a new revolving credit line with its consortium banks of €4bn with a term of five years.3 The loan refinanced its prevailing credit line of €3bn ahead of schedule, which would have been due in April 2021. In additional to an increase in the credit line, Continental agreed upon improved conditions and took sustainability components into account. The syndicate supplying the credit line to Continental consisted of 27 international banks with Deutsche Bank and BNP Paribas acting as lead managers.
Commenting on the deal at the time, Scholz said, “The level of interest in syndicated financing for our new credit line with sustainability components was very high. Syndication was clearly oversubscribed. The new credit line includes improved conditions that reflect our solid balance sheet structure and financial performance. This is once again strong proof of banks’ confidence in Continental’s economic strength and strategy.”
The amount of the interest payments for the drawdown of the credit line is directly linked to the sustainability performance of the DAX top 30 Company. Good performance is rewarded with a reduction in accrued interest. Non-achievement, meanwhile, will result in interest rate increases. The basis for this is the annual assessments of agreed performance improvements under Continental’s sustainability strategy, which was relaunched in 2019.4 These include procuring electricity externally from renewable sources, increasing the proportion of women in management positions, reducing the accident rate and sick rate, and increasing the proportion of recycled waste.