IRS (Interest Rate Swap) is a transaction that hedges interest rate risk. The instrument prepared for Tauron is the first in Poland to be based on the rules of sustainable development. This means that if Tauron achieves better environmental performance, the Bank would charge less interests on the existing debt.
The Company that avails of the “green IRS” is incentivised to take account of environmental goals in its business model. For an energy producer these would be to lower CO2 emission and to increase production of energy from renewable sources of energy.
Meeting these conditions would result in the company achieving significant financial benefits; for Tauron, this would mean lowering the fixed interest rate.
“Environmental and climatic aspects are more and more frequently taken into account when providing financing and assessing risk of a given investment. SDGs (Sustainable Development Goals) and ESG (Environmental Social Governance) ratios play an important role. They are included when creating new products and financing offer that is to encourage and support entrepreneurs to go greener. Our objective is to support the domestic energy sector in its transformation to a zero-emission system. This is why we provide our customers with solutions that support them, at the same time taking into account the nature of our market. We are happy to see that Santander Bank Polska was the first financial institution in Poland that has run the transaction hedging interest rate risk that is based on sustainable development rules,” says Paweł Szczepaniak from the Treasury Services Department at Santander Bank Polska.
This is yet another stage of cooperation between Santander Bank Polska and Tauron. In October 2020 the Bank became coordinator, organiser and dealer of the issue of first Sustainability-linked bonds for the company, totalling PLN 1bn. Both transactions, unprecedented on the Polish market, will help the Company go zero-emission. Santander Bank Polska is very serious about the challenges that will be faced by the energy sector in the upcoming decades. This is why the Bank is active in financing “green” projects in the sector and creates solutions that enable energy companies reach ambitious goals.
“Tauron’s Green Turn is a strategy that has been in place for some eighteen months. It’s mainly aimed at a radical change of the Group’s production structure and, at the same time, decreasing the CO2 emission. In 2030, we want to produce 2/3 of the energy from renewable sources and thus contribute to decreasing the emission by 50%. This is an ambitious task which requires flexible and diversified financing. We can see that the financial sector offers many solutions which we are using,” says Marek Wadowski, Vice President of the Management Board at TAURON Polska Energia.
What is “green IRS”?
IRS is a transaction that hedges interest rate risk. The Customer swaps payments based on variable index (e.g. WIBOR) into a fixed rate. The transaction is to hedge the risk coming from financing based on variable interest rate of e.g. loans or bond issue. Prior to entering into a transaction, the Customer needs to pay the interest costs (WIBOR+credit margin). WIBOR may change over time and increase, and thus the interest costs will go up as well. Thanks to IRS, the costs do not change over time.
The only change made by Santander Bank Polska in this case is that IRS is based on sustainable development rules. Additional financial incentive has been introduced (lowering fixed interest rate). For such a discount to materialise Tauron will need to meet certain conditions that had been defined prior to the transaction; they will be monitored on an annual basis. If conditions in a given year are met, interest rate for the subsequent year will be decreased by an agreed amount.
Just like many European economies, Poland is now facing the challenge of green transformation. Contractors, individual customers, and investors are eyeing with increased attention the results of a given business on the environment, climate and society. Business representatives monitor their carbon footprint and develop ambitious strategies aimed at limiting it even further. It is thus to be expected that the number of transactions such as “green IRS” and instruments such as Sustainability bonds in the Polish market will grow.
Santander Bank Polska Group is one of the largest financial groups and the largest private bank in Poland. Santander Bank Polska offers financial solutions to personal customers, micro, small and medium enterprises, and domestic and international corporations. The Bank operates one of the biggest networks of branches and partner outlets. It also renders services via electronic channels, including mobile banking. Among the market leaders in terms of the use of modern technologies in banking, the Bank consistently develops its brand in line with its strategic goal to achieve the position of the best bank for customers. Loyalty and satisfaction of its customers are the priorities for Santander Bank Polska. With this in mind, the Bank regularly implements innovative functionalities to help clients manage their personal and business finances effectively. Since 2011, the Bank has been a member of the international Santander Group. The subsidiaries from Santander Bank Polska Group offer investment funds, brokerage services, insurance, leasing, and factoring.
Established in 1857, Santander Group is a leading universal banking group headquartered in Spain. It operates in 10 core markets in Europe and the Americas, and is one of the largest banks worldwide by market capitalisation. Its purpose is to help people and businesses prosper in a Simple, Personal and Fair way. Santander Group strives to be an increasingly socially responsible institution. Therefore, it committed to earmark over EUR 120bn between 2019 and 2025 to finance investments and green solutions, and to provide over 10 million people with financial support over the same period. As at the end of Q3 2020, the Group had 147 million customers (incl. 22 million loyal customers and 41 million digital customers), operated 11,500 branches and employed 193,000 people.
Source: santander.pl
Cover picture: santander.pl