Etihad raises $1.2 billion in aviation’s first-ever sustainability-linked loan tied to ESG targets

Etihad Airways has secured $1.2 billion through its first sustainability-linked loan (SLL) tied to environmental, social and governance targets (ESG), its third sustainable financing deal. The airline reported the transaction as the largest of its kind so far, taking to over $1.9 billion the total funds it has raised through ‘green’ instruments since 2019, and claims it is the first-ever SLL tied to ESG targets in the aviation sector, writes Tony Harrington. The national airline of the United Arab Emirates said the funds would be used for multiple, undisclosed initiatives as part of its Greenliner sustainability programme, through which it works with partners within and outside the aviation sector to reduce emissions. The funding partners for the loan were HSBC and First Abu Dhabi Bank, which structured and coordinated the deal. Etihad has committed to achieving net zero carbon emissions by 2050, with interim milestone goals set for 2025 and 2035.

“To underscore our accountability, we have committed to penalties and incentives of up to $5.5 million linked to our progress against key performance indicators,” said Adam Boukadida, Chief Financial Officer at Etihad Aviation Group. Typically, through such incentive-based facilities, interest payments or other loan-related costs increase or decrease, depending whether the borrower achieves or falls short of agreed performance targets.  

The environmental element of the latest loan commits Etihad to reducing the carbon intensity of its fleet of passenger aircraft, measured by CO2 emissions per revenue tonne kilometre flown. The airline currently operates narrow-bodied Airbus A320 and A321 aircraft, and wide-bodied Boeing 787-9, 787-10, and 777-300ER jets, with Airbus A350-1000s set to join the fleet and Boeing 777-9s on order.  The airline is phasing out its B777-300ERs and has grounded its fleet of 10 Airbus A380s.

The social element of the new loan relates to the airline’s Global Business Service Solution centre in Al Ain, UAE, designed to contribute to socioeconomic development of the community and to increase the employment and skills training of Emirati women, while the governance KPI is linked to the Integrity Score, a detailed measure used to assess internal culture and integrity.

“As a strategic partner and financier to Etihad in this transaction, FAB has demonstrated its sustainable financing expertise and contributed to the transition towards sustainability across the aviation sector,” said Martin Tricaud, Group Head of Investment Banking at First Abu Dhabi Bank (FAB), UAE’s largest bank. “We recognise the importance of the benefits and opportunities that can be brought about through sustainable finance.”

In 2020, Etihad raised $600 million through the first sustainability-linked transition sukuk, or Islamic bond, in global aviation, to support investments by the airline in its fleet to help reduce carbon emissions (see article).

The airline’s fleet-related sustainability initiatives last year also included offsetting all carbon emissions generated in 2021 by its themed Boeing 787-10 Greenliner aircraft, and the use of its newest 787-10 in Boeing’s ecoDemonstrator research programme, together with NASA and Safran Landing Systems, prior to delivery to the airline.   

In 2019, the airline raised €100 million ($116m) through its first sustainable financing, to help fund expansion of the Etihad Eco-Residence, a sustainable apartment complex for cabin crew based at its Abu Dhabi hub. This was also the first airline fundraising tied to compliance with the UN Sustainable Development Goals. 

Photo: Etihad Greenliner