Today’s Solutions: August 11, 2022

For the first time ever, a luxury brand has signed a loan that is linked to sustainability goals. That brand is Prada, and it has signed a £42.9 million loan with the banking group, Crédit Agricole, with repayment terms conditional on meeting key targets around the sustainability of its products and operations.

In these transactions, the borrower’s meeting of certain social and environmental goals is incentivized through the favorable or unfavorable adjustment of interest rates. In this case, that means Prada’s interest payments on the five-year loan will be determined annually based on whether the company has hit three specific objectives.

The first focuses on its physical shops, setting out that a certain number of them need to be certified gold or platinum according to the green-building rating system Leadership in Energy and Environmental Design (LEED).

The other targets are related to the number of training hours given to employees and reinforce a pledge made by Prada earlier this year, which involves phasing out the use of virgin nylon by 2021. Sometimes goodwill alone isn’t enough to motivate climate action.

With the signing of this sustainability-linked loan, Prada sets a precedent for other brands that might want to become more eco-friendly but don’t yet have the intrinsic motivation to do so, thus relying on a financial incentive.

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