Green » Case study: Volution CFO on sustainability-linked financing

Case study: Volution CFO on sustainability-linked financing

Andy O’Brien explains how the ventilation systems firm launched a £150m sustainability-linked revolving credit facility as a way of underpinning its ESG commitment

When the time came to revisit financing arrangements, Volution CFO Andy O’Brien decided to launch a £150m sustainability-linked revolving credit facility as a way of demonstrating the ESG commitment of the firm, which specialises in ventilation systems for homes, offices, hospitals and  schools. The process, undertaken between August and November last year, replaced a previous financing of £120m.

The new facility, launched last year, forms part of a broader ESG strategy for the firm, which  is experiencing growing demand for its products boosted by energy efficiency regulations and increased awareness of the importance of indoor air quality. As a result, Volution’s share price has doubled in the last 12 months to valuing the group at over £600m by February 2021.

Planning for change

In recent years, Volution has made a number of acquisitions in Europe and Australasia, including two announced in the last three months in the Netherlands and Sweden.

The initial spark for undertaking the sustainability-linked revolving credit facility (RCF) was that Volution’s financing facilities were due for renewal in late 2020 /early 2021, and so O’Brien and his team were considering fresh options.

“We began thinking about a financing approach that would fit into how as a leadership team we had been looking at sustainability and ESG (environmental, social and governance) issues, and how we wanted to think about our business. That led us to look at how we communicate what we did, and how we articulated that to investors and third parties, as well as employees, what the business stands for,” he says.

Because Volution’s products offer health and environmental benefits, O’Brien says that the  executive team recognised there was a disconnect between how local teams discussed the credentials of products with customers compared to how the  story was being communicated at group level.” We realised we weren’t effectively telling this story to the market as well as we could do. So by March/April of last year a decision was made to change fundamentally the approach, by emphasising the ESG credentials of what we do,” he says.

A core group of the leadership team including O’Brien, the CEO Ronnie George, the business development director and the company secretary discussed options over the course of the spring and summer.

Joint house broker Berenberg and communications specialists Design Portfolio were engaged to help the process of finding the right solution through a series of workshops, on the broader positioning of the firm. “We gave a lot of information about what we do and asked for thoughts and ideas about how we could describe our business in a much more comprehensive and interesting way.  As a result, we changed the look of Volution’s brand, colour codings and our purpose strap line to: ‘Healthy air, sustainably’.

Focusing on finance

A key task for the team was to identify KPIs (key performance indicators) and to set targets which would demonstrate tVolution’s ambition. “We centred on the environmental value of our products, in particular the percentage that are low carbon solutions- that are meeting or improving carbon performance, to local and national regulations.

“Then in terms of our own production processes, we have a pretty ambitious target of moving from virgin plastics to fully recycled plastics,” says O’Brien.

Given O’Brien already had buy-in from the rest of Volution’s senior management team, it was a fairly seamless process to incorporate these KPIs into the financing, he says. “It also helped that it was consistent with the values that we were describing for the business.

“We had already consulted widely with stakeholders and advisors including financial PR specialists, our communications agency and individual shareholders, as part of our wider ESG strategy development and communications programme,” he says.

Banking advisors Rothschilds were consulted on possible options for green finance instruments before a dialogue with the group’s four banks, Bank of Ireland, Danske Bank, HSBC and RBS, was started.

“HSBC shared the concept of the Sustainability-linked RCF with us, which aligned really well with our wider ESG strategy and targets whilst providing us with the appropriate financial capability.

Key questions for us were: What might this financing instrument look like and how would it work effectively for us?

“We took this forward in a couple of sessions featuring myself and our business development director Lee Nurse, and two representatives each from HSBC and Rothschilds. We soon understood that most of the mechanics of this facility were the same as we had with our previous financing, and recognised it would be viable for us,” says O’Brien.

What was needed to make this process effective was establishing one or two KPIs, for ensuring Volution delivered on annual sustainability targets, says O’Brien. “Once we were comfortable with the KPIs, we agreed a five-year financing arrangement and established a roadmap for progressive improvement in each of the targets,” adds.

Once all four banks in the syndicate had ratified and endorsed the facility, the refinancing went through a conventional process of reviews with them and legal advisors. Internally, regular updates were provided to the Board on the timetable and progress of the refinancing programme, as part of the wider ESG strategy development and refreshed communications strategy.

Communication piece

O’Brien says a big push was made to share the ESG strategy and explain the sustainability-linked RCF to the wider group management team, “making sure that they understood the background, the rationale and the performance targets.

“We dedicated our November 2020 employee forum, at which we had 27 representatives covering all business in the group, to the theme of sustainability and ESG,” he says.

“With the RCF’s two specific indicators, we worked with the teams across the group to ensure clear understanding of the targets and to encourage local initiatives and actions to support their delivery. We used the forum to talk much more broadly about ESG and share information, initiatives and ideas across the Group. .

A representative from each division of the business was asked to present on local sustainability initiatives they had implemented or were looking to put in place. These varied from product design ideas, to reducing energy consumption of our facilities through for example installation of LED lighting to waste reduction initiatives for example in our choices of packaging materials. “It encouraged people to bring these initiatives forward and there was clear enthusiasm and passion from all the teams,” says O’Brien.

Volution also developed an employee communication programme for the roll out of the sustainability strategy, with all group employees receiving an individual employee pack.

“Externally we published an RNS (Regulatory News Service) to communicate the Sustainability RCF, which we weren’t obliged to do, but thought it would be an opportunity to update the market on the initiative.

“In addition, our annual report and accounts was refreshed to align and communicate our sustainability strategy.  We also discussed with shareholders through multiple individual shareholder meetings,” says O’Brien.

In January 2021 the CEO and business development director presented to a sustainable development forum attended online by over 700 participants.

The COVID-19 pandemic and resultant constraints on ability to physically meet people and get teams together has posed some challenges, and meant that the roll out and communications was undertaken via Microsoft Teams and Zoom.

But the results reflected how well communication had been undertaken remotely. “By seeking plenty of advice and input both internally and externally, we ensured a clarity of message and alignment of functions and businesses to the same message and objectives.

“We understood the need to be open minded to new approaches and ideas and where possible start with a “blank page”, and also to be authentic in communicating the initiative. A message is only going to be credible and authentic externally, when people read it internally, and can buy into it,” says O’Brien.

Material benefits

An immediate benefit from delivering against the targets set against the sustainability-linked RCF, is that Volution can earn an interest discount from the banks.

“That amount will be reinvested, supplemented by our own funds, into the best sustainability programmes, devised by teams from across the group. It then becomes self-sustaining, because it generates ideas, which drive performance,” he says.

Although the RCF has only been live since the start of December, O’Brien says it already feels established- “It is very much ingrained and integrated into what we do. We will review it every month, along with our broader performance against the ESG initiatives and the top-level targets for each of our businesses,” he adds.

The feedback from employees has been positive, says O’Brien. He says staff have shown they want to contribute to and participate in Volution’s sustainability journey, in terms of branding, purpose, messaging, communication, and ESG commitment. “They can see that it links much more clearly to what they do, in terms of their local brands and local businesses. Ultimately it engenders greater commitment and a deeper level of connection to the group as a whole,” he reveals.

Existing shareholders have been very supportive, with strong feedback, says O’Brien. “We have also seen plenty of interest from prospective investors wanting to know more about both the ESG strategy and the sustainability-linked RCF.

“We don’t for a second think that we’ve got the answer here, we just think that we’ve moved from maybe a three out of 10 to a six or seven out of 10. This is all about constantly improving, and trying to find ways of raising the bar.

“I think our previous materials were very financially-oriented, with less colour and insight into the business as a whole. With this greater level of clarity, I think shareholders can see what are we about as a business, where our purpose and value add is, and how we are thinking about the future,” he adds.


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