How to drive your ESG strategy: lessons from coffee and cargo

The science is clear – climate change is happening, and we've already seen the consequences. The good news is that there is still a lot we can do to limit global warming – reducing emissions, stabilizing forests and better wastewater management, for instance, all play a role in protecting the future of our planet and the people on it. While most businesses have focused on sustainability for several years, they are starting to feel increased pressure to prioritize Environmental, Social and Governance (ESG) issues even further– from customers, employees, investors and regulators alike. Younger consumers particularly say they want to do business with companies who value and care about the issues they do. It shows in the way their investing as well – with 33% of millennials saying they regularly or only make investments where ESG factors are incorporated.

Some companies, however, are out ahead and carving a path for others in their industries to follow. That includes leaders like Mercon Coffee Group, a global green coffee supplier, and Seaspan Corporation, the largest owner-operator of container ships in the world. Both have implemented a range of innovative initiatives aimed at achieving their ESG goals – including being the first in their fields to use a sustainability-linked financing loan to support their strategies.

Unlike more traditional green bonds or green loans, where a company might use the funds to make carbon-neutral purchases or investments – sustainability-linked loans are tied to specific ESG key performance indicators (KPIs). Companies map out KPIs in advance, typically with the help of advisors and auditors. As these pre-determined goals are met, the cost of borrowing goes down.

As one of the leading green coffee companies in the world, Mercon is deeply invested in every part of the global supply chain – from the farmer right through to the consumer. With a 70 year history, they know the sustainability of the farmer is at the core of that supply chain.

Coffee producers around the world have made significant progress in improving their productivity and sustainability by using updated farming technology and practices. However, many smaller farms don’t have access to these resources and are at risk of not making a sustainable living income. That’s why Mercon developed LIFT.

LIFT is an ongoing educational and technical support program designed to help farmers learn how to increase productivity in an environmentally friendly way while also improving the quality of life in the surrounding community. Mercon also works closely with Seeds for Progress Foundation, which provides quality education to students in schools within coffee growing regions. This includes providing technology to schools and training to teachers who work there. By investing in the infrastructure of farms and communities, the company’s goal is to help both producers become more sustainable over time.

With this purpose as their guiding principle, Mercon looks to partner with companies – both partners and clients – who value sustainability in the same way they do. That’s what led them to start looking for more sustainable financing to support the work they were doing.

In 2019, the company partnered with HSBC on the first coffee-only green revolving credit facility. To measure their progress, Mercon developed a custom LIFT index, which considers all their major environmental, social and economic KPIs. These KPIs were then linked to specific ESG goals. When KPIs are met, the company receives a discount on the facility, which is reinvested directly back into its social programs.

Like many companies, Seaspan has also long been focused on various ESG issues. This includes programs to maximize safety and decrease the risk and frequency of injury onboard their vessels. They've also led the way in developing new container ship designs that reduce global fleet emissions.

Just over a decade ago, the company launched an innovative program to create some of the most environmentally friendly vessels in the industry. Seaspan has successfully reduced carbon emissions by about 25% through this initiative - but there is more they want to do. That’s why they recently began building a cross-functional team to work together to create a more formal, holistic strategy.

Like Mercon, when they learned about sustainability-linked financing, they felt it aligned well with what they were trying to achieve. The International Maritime Organization (IMO) has established various regulations for the container ship industry to hit certain ESG targets by 2020, 2030 and 2050. The Poseidon Principles also provide further guidelines for measuring emissions against both internal targets and competitors, which Seaspan used to build out its KPIs.

In addition to measuring emissions, they also included a supply chain component in their facility - incorporating specific benchmarks and incentives into their contracts to create a sustainability chain gain. That means when customers meet ESG targets, Seaspan rewards them financially, which further helps them drive sustainability throughout the entire supply chain.

"The concept of incorporating sustainability into finance goals may seem daunting at first,” says Matt Borys, Treasurer and Head of Capital Markets for Atlas Corporation, Seaspan’s parent company. “But really, if you're a company that's been focused on ESG strategies, it’s likely you already have a lot of what you’ll need. It's just a matter of collecting information from across the organization and pulling it into a useable, public format.” What takes the most time, he says, is thoughtfully defining KPIs.

Admittedly, that process takes time and commitment, so he also says it all must start from a good place. "Yes, everything needs to be done right from the beginning – but it also has to be something that the leaders in the organization truly believe in.” Matt echoes this sentiment. “Finding alignment with any business plan is a critical first step,” he says. “That includes developing an ESG strategy – which is why coming together internally and defining what you want to achieve as a company is as important as actually achieving it.

We all have a role to play in creating a more sustainable future. That’s why HSBC is bringing companies like Mercon and Seaspan who are at the forefront of their industries together to discuss how financing can help businesses achieve their sustainability goals. You can listen to their full conversation with HSBC’s Head of Corporate Sustainability, Kelly Fisher on LinkedIn. How to drive your ESG strategy: Lessons from coffee to cargo is the first in a series of live LinkedIn events designed to support the bank’s Business Plan for the Planet by spotlighting just a few of our clients who are making a difference and.

To learn more about Mercon and Seaspan's ESG strategies, listen to our podcast - HSBC Global Viewpoint: Banking and Markets

To hear from other clients, as they share insights about their sustainability journey, click here.