Project detail - ETC Group

Who is our customer

ETG is a diversified agricultural conglomerate with a diverse portfolio of expertise across various industries, encompassing agricultural inputs, chemicals, logistics, processing, food and food ingredients, energy, metals, technology, and supply chain optimization. ETG has built its business by linking small-holder African farmers to a diverse pool of global buyers and efficiently managing this value chain. It started operations in 1967 in Kenya by distributing and marketing products manufactured by multinational companies in the country to East Africa. ETG has since diversified operations globally (45 countries spanning 6 continents), with most operations still centered around Africa.

What is our funding objective?

With the Sustainability Linked Loan (“SLL”) arranged by FMO, ETG funds its permanent working capital requirements, predominantly in Africa, where ETG recorded most of its revenues.

Why do we fund this investment?

ETG has gradually built an ambitious sustainability agenda. This transaction represents a landmark and innovative opportunity for both ETG and FMO to demonstrate the importance of high sustainability standards, as the company will define ambitious KPIs on the reduction of Greenhouse Gas emissions, deforestation, and reforestation, as well as extension services to supply chain farmers (including women). This transaction is labeled 100% Reducing Inequalities (RI – SDG13) as ETG sources a significant portion of its commodities from smallholders, partly in Least Developed Countries. Additionally, the SLL is a landmark transaction for ETG as this financing is presented as an anchor facility, allowing FMO to support the company in a syndication process to other development finance institutions willing to support ETG’s strategy.

What is the Environmental and Social categorization rationale?

Based on environmental and social (E&S) risks and impacts and the countries' and regional contexts, the E&S risk category is B+. The main risks are in the supply chain and are related to the inherent sector and country context. Human rights risks include child and forced labor risks, general labor risks, transport and machinery operating risks. Environmental and de-forestation risks are less prominent. Specific E&S tools, monitoring, and root cause-addressing mitigation programs address supply chain risks. The relevant IFC Performance Standards for this financing are PS1 to PS4 (Management, Labor, Resource Efficiency, and Community). For Resettlement (PS5), Biodiversity (PS6), Indigenous People (PS7), and Cultural Heritage (PS8), policies are in place in case new activities or expansions trigger them. E&S risks will be monitored and mitigated by implementing a corporate Environmental and Social Action Plan. Due to the lack of technically and economically feasible alternatives, ETG is currently using coal in a number of its facilities to generate heat and steam. The company has approved an ambitious decarbonization strategy, which includes the intention to entirely phase out the use of coal in the medium term by switching to biomass. Due to (i) the lower calorific value of biomass, (ii) the time required to develop a supply chain for the biomass volumes required, and (iii) ongoing expansions and acquisitions, ETG will invest in new dual-use boilers to make this transition possible. Although these dual-use boilers will initially run on coal, they will switch to biomass as soon as operations allow. As a consequence of this temporary increase in coal use, ETG is not compliant with FMO's fossil fuel policy. FMO is providing ETG with a conditional exemption allowing the company to invest in additional (coal) boiler capacity for a limited number of facilities. Conditions for exemption include, amongst others: (i) any new coal boilers should be dual-purpose and for production of steam/heat only, (ii) no technically and economically feasible alternatives are available, and (iii) ETG commits to a GHG reduction and coal-phase out plan.

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Date	Total FMO financing
7/18/2019	USD 25.50 MLN