ING delivers the first sustainability-linked loan to data center sector
Data flows through almost everything we do, from powering our smartphones to streaming our favorite shows to networking businesses around the world - and its use is increasing exponentially. By 2030, global dataflows are expected to be more than 20 times those of 2018. As our society uses more and more data, we need to simultaneously find ways to deliver that extra capacity without consuming excess energy.
Data centers are the central hubs that connect and process all data traveling through the air and in the underground and submarine cables for an ever-expanding network of devices, machines, and cloud services. Increasing data demand means network and data center services require more and more power – making it crucial to constantly improve energy efficiency and develop new power-saving technology.
Working closely within the data center sector, ING has pioneered innovative sustainable financing solutions to help its clients meet ambitious sustainability initiatives. By offering eligible companies a reduction on interest margins if they meet sustainability targets, ING seeks to incentive companies to reduce carbon emissions and help combat climate change.
The first-ever Sustainability Linked Loan
In September 2020, ING worked with leading data center company Aligned Energy to close the industry’s first ever sustainability-linked loan (SLL), a lending facility where the regular pricing grid is linked to sustainability performance targets with the goal of supporting and rewarding clients that want to become more sustainable.
“Building data centers is a capital-intensive business. Sustainability is a key component of nearly every project that crosses our desks. Closing this milestone financing enables us to converge those key components into an industry-first that benefits our customers and ensures Aligned is well-positioned for scalable, sustainable growth,” said Anubhav Raj, CFO, Aligned.
The $1 billion refinancing package includes a revolving credit facility and term loan tranches, all structured with sustainability KPIs related to energy efficiency, safety rate and certification. This financing helps Aligned Energy expand its already industry-leading sustainability credentials - it has scored consistently in the top percentiles for its power usage effectiveness (PUE). By setting a new standard for sustainability-linked financing within this sector, ING can further its ambitions to help lower global carbon emissions and meet the goals of the Paris Agreement.
Identifying an industry leader
ING’s relationship with Aligned Energy began in 2017 when the firm’s New York-based Technology, Media and Telecoms (TMT) structured finance group took notice. Backed by Macquarie Infrastructure and Real Assets (MIRA) and Blue Mountain Capital (BMC), Aligned was growing rapidly driven by a forward-thinking management team.
“Aligned’s marquee customers are some of the most sophisticated technology creators and consumers in the world, and since our inception, we’ve been collaborating with them to address their sustainability goals through more efficient use of space and infrastructure. This means championing sustainability initiatives that permeate every facet of our business, from the use of sustainable construction processes and materials, to efficient, water and energy-saving technologies such as our Delta3 cooling system, to sustainability-linked financing tied to our core environmental and growth objectives,” said Andrew Schaap, CEO, Aligned
With ambitious sustainability targets at its core, ING saw an opportunity to introduce a different kind of financing that would support the company’s agile strategy.
“We identified Aligned Energy's potential early on as not only a high growth company that was able to attract blue chip tenants, but also as a leader committed to solving sustainability challenges associated with data center infrastructure,” said Sowseel Gudimetla, VP, TMT, ING. “Given our in-depth understanding of the company’s business model, the data center sector and sustainable finance, we were able to structure a deal as the Sustainability Coordinator that solidifies Aligned Energy as a leader in data center sustainability.”
Aligning bold sustainability strategies
In addition to being a first-of-its-kind SLL for the data center industry, this facility was differentiated in how both ING and Aligned Energy took steps beyond a typical sustainable financing to tie the firm’s business strategy more closely to its sustainability goals.
The KPI-linked structure ensures that proceeds go directly to meaningful and measurable change. Aligned Energy and ING strategized to push the firm’s already industry-leading renewable energy targets further, in addition to building upon its disclosure framework and workplace safety protocols.
“Aligning our objectives to enable a greener digital economy isn’t just critical to creating a more sustainable future, it’s also smart business,” continued Andrew Schaap. “Tying our financing to renewable energy, transparent ESG reporting and industry-leading workplace safety KPIs closely aligns with our customers’ strategies and objectives. Our sustainability initiatives result in a better return on investment for our shareholders and lower the overall cost of operation for our customers, providing them with a path forward that is both sustainable and scalable.”
The SLL also features a provision to report through the Global Real Estate Sustainability Benchmark (GRESB) ESG reporting benchmark, enabling greater uniformity and transparency of action.
“From the moment we introduced the concept of the sustainability-linked loan to the Aligned Energy team, we had very ambitious and meaningful conversations, which speaks to the level of commitment the firm wanted to make,” commented Dan Shurey, VP Sustainable Finance Americas, ING. “You are seeing elements not typically included in SLL’s, and that is a direct result of all parties understanding the strategic priorities of the business and how ING’s offering can help drive those underlying strategies.”
To add onto the complexity of the financing, the deal paused momentarily in March 2020 as the Covid-19 crisis impacted the United States. The deal teams quickly resumed in a virtual environment, fueled by data transfer and connectivity - underscoring the relevance of what was being developed.
“In addition to this being the U.S. data center industry’s first sustainability-linked financing, it’s also one of its largest private debt raises,” continued Anubhav Raj. “Forging a path of industry-firsts is innate to Aligned’s DNA and core values; it’s further enabled by a forward-thinking management team and sophisticated, sustainability-minded capital partners.”
“This data center financing and our sustainability solutions are at the cross-roads of the convergence of two very large and impactful trends - the need to green all industries, and the acceleration of data usage in the digital age,” continued Dan Shurey. “We believe sustainable business is better business. Everybody wins.”