Musim Mas is taking loans to make their operations more sustainable

International palm oil company, Musim Mas, has taken out its first sustainability loan. Musim Mas will convert its 150 million Euros (around $217.1 million) Revolving Credit facility into a Sustainability-Linked Revolving Credit Facility, with HSBC and Rabobank as joint lenders for the loan.

About the debtor

Musim Mas is a palm oil company operating in 13 countries. It is based in Indonesia, and its operations include the cultivation, refining, and distribution of palm oils and their derivative products. Palm oils are used in most products today, spanning across industries such as the food and beauty industry, and are even used as biofuel.

Correspondingly, the oil palm crop that palm oils come from is a high demand product, which has led to illegal and excessive deforestation to produce farm land for oil palm cultivation. As a result, Musim Mas’ decision to take a sustainability-linked loan indicates that the company wants to address such environmental issues in their supply chain.

Sustainability-linked loans

This new loan gives Musim Mas the chance to integrate environmental and social sustainability tenets into the company’s operations, and therefore doubles as a way to announce their dedication to being responsible business owners. 

Musim Mas has also expressed an intention to follow the Loan Market Association’s (LMA) Sustainability-Linked Loan Principles, which emphasises the responsibility that private companies have to aid the transition of the economy to a sustainable one. 

These principles help to guide companies who are looking to take sustainability-linked loans. Among the advice given, the LMA advises that companies be discerning with the loans taken to ensure high quality and high impact achievements, and that companies regularly report on the allocation of the proceeds and their corresponding sustainability performance in order to continue that working relationship. Or, in other words, that companies be smart about which loans they take in order to have maximum positive impact while continuing their business loans.

This all seems to indicate that most companies who take sustainability-linked loans are ones motivated to change their operations.

About the creditors

The other companies involved include HSBC, one of the world’s largest international banks, and Rabobank. 

Rabobank operates in 37 countries and has an international focus on the food and agriculture sector. The bank particularly assists companies with the shift to a more sustainable food supply chain and will be contributing its expertise in both the food and finance industries in this project as the sustainability coordinator.

Sustainability coordinator

This role is particularly important, as the sustainability coordinator is the organisation that integrates sustainability principles into the financing criteria. What this means is that the sustainability coordinator determines the loan assessment criteria for Musim Mas. 

“In our role as a leading food, agriculture and trade commodity bank, we are committed to taking a leading role in working closely with our clients in their sustainable transition journeys," said Gregory Vandeler, the Head of Trade & Commodity Finance of Rabobank Asia. 

“Linking sustainability performance to financing is a way to support our clients in their sustainability commitments while simultaneously enhancing productivity, resilience, and farmer livelihoods. There is great potential in making the agri-food sector more sustainable.”

Assessment criteria

The criteria that Rabobank has set for Musim Mas is determined by three KPIs, primarily focussing on smallholders — those who run small-scale agricultural businesses. Musim Mas must ensure that the smallholders it contracts are certified by the Roundtable on Sustainable Palm Oil (RSPO). It must also train these independent smallholders, and finally, Musim Mas must maintain a deforestation-free palm oil supply chain and source its oil palm crops from sustainable sources. 

The emphasis on smallholders is due to the nature of the palm oil industry; independent smallholders make up an estimated 41% of the production area. Therefore, engaging and helping to train fulfils multiple functions: these independent farmers will be able to continue making a livelihood, learn how to improve the yield of their farms, and adopt sustainable farming practices. By extension, this helps Musim Mas’ supply chain become more sustainable, environmentally and socially as they support these smallholders.

External verification of Musim Mas’ progress will be assessed annually by reputable assessors to ensure that their progress is transparent and that the company is kept accountable.

"Contracting a sustainability-linked loan with ambitious, meaningful, and measurable targets is a testament to Musim Mas' deep-rooted commitment to sustainability and responsible corporate behavior," said Alvin Lim, the Chief Financial Officer and Executive Director of Musim Mas.

“Musim Mas is reinforcing to our stakeholders — financial banks, customers, and employees — about our dedication to driving positive environmental and social impact while delivering long-term value."