Prada is first in industry to sign sustainability-linked loan

By guest author Annachiara Biondi from Vogue Business

Prada S.P.A on November 5, 2019 said it had inked a EUR 50 million, 5-year sustainability term loan with Crédit Agricole Group. The agreement allows for the interest rates to be adjusted annually, if certain sustainability targets are achieved. For instance, Prada’s rates will be trimmed if a certain number of stores are assigned a LEED Gold or Platinum certification; if employees meet a set number of training or hours; and if it meets targets for using Re-Nylon, a sustainable nylon substitute, for the production of goods.

Caption courtesy by Vogue Business

The three objectives were chosen by Crédit Agricole from a list provided by the Italian company, which prioritised targets that support artisanship, energy savings and circularity. “The novelty is finding a way to measure them in a tangible way,” says Alberto Bezzi, senior banker at Crédit Agricole Corporate and Investment Bank. The parameters against which these targets will be measured, are not fixed, but will evolve as Prada undertakes more eco-friendly actions.

The initiative is the first of its kind in the luxury industry, but similar loans have been making inroads elsewhere. According to Environmental Finance data, the sustainability-linked loan market has grown from USD 5 billion in 2017 to USD 40 billion in 2018. Crédit Agricole, which executed Prada’s 2011 Hong Kong IPO, has previously inked sustainability-linked loans with entities like natural gas distribution company Enel and Hong Kong’s Swire Properties.

“For certain sectors, like oil, gas and mining, the theme of sustainability was a lot more pressing, with greater investor’s risks ,” says Mario Ortelli, managing partner of luxury advisory firm Ortelli&Co. “Now that [luxury] consumer and company awareness of sustainability has noticeably increased, a lot of other companies are to be expected to take on sustainability-linked loans.”

“This transaction demonstrates that sustainability is a key element for the development of the Prada Group, increasingly integrated into our strategy,” said Prada’s chief financial officer, Alessandra Cozzani, in a statement.

The loan is the latest of a number of sustainable initiatives undertaken in 2019 by the Italian luxury house, which also owns Miu Miu, Church’s and Car Shoe. In May, Prada announced that it would stop using fur in its collections, joining brands like Chanel, Burberry and Gucci. A month later, the brand launched Re-Nylon, a collection of six bags made with Econyl regenerated yarn — created with recycled plastic waste from oceans, fishing nets and textile fibre waste. The company also pledged to convert all virgin nylon used in its products into Re-Nylon by the end of 2021.

Despite Prada’s recent commitments to sustainability, it seems there is nothing specific that makes the company a more suitable candidate for sustainability-linked loans than others. “Any luxury company can aspire at inking sustainability-linked loans,” says Ortelli, adding that these companies tend to have the same operational model.