Data center providers are used to discussing the sustainability requirements for their customers. Now there are similar conversations happening with their lenders.
An early beneficiary is Aligned, which has lined up a $1 billion credit facility using sustainability-linked financing, and will use the funds to expand its data center capacity. Aligned says it is the first data center company to use a sustainability-linked loan (SLL), in which the borrower earns a lower interest rate by hitting benchmarks for sustainable practices.
Aligned says the new financing achieves several key goals, providing funding to support construction of additional data center space for customers, and affirming Aligned’s commitment to sustainable operations.
“Aligned’s latest sustainability-linked financing accelerates our goal to set a best-in-class example for the data center industry with respect to environmentally and socially sustainable growth,” states Anubhav Raj, the CFO of Aligned. “Sustainable practices and principles permeate every facet of Aligned’s organization; aligning these initiatives with our financing further demonstrates an industry-leading commitment to environmental stewardship.”
CEO Andrew Schaap said the financing enables Aligned to continue expanding its data center portfolio. “This includes land acquisition in key U.S. and international regions to address the heightened data center demand of our marquee clients, as well as expediting the expansion of existing data center campuses,” said Schaap.
Investors, Lenders Embrace Sustainable Finance
The $1 billion transaction is the latest sign of the financial sector’s embrace of digital infrastructure, both as lenders and equity investors. It also reflects the growing importance of sustainable finance that prioritizes ESG criteria (environmental, social and governance) in selecting borrowers to work with.
“ESG has been around for a while, and it is beginning to permeate the financial institutions and the way they think,” said Schaap. “Investors and financial institutions are also being held accountable for their sustainability practices. You’ll start seeing it more. The banks are clamoring to be involved in these.”
Sustainability has long been an emphasis for Aligned, which prioritizes efficiency and energy conservation in its wholesale and build-to-scale data center solutions. Recent headlines have brought climate risk to the fore, prompting customers to focus on eliminating fossil fuels from their IT footprint.
The sustainable financing builds on that reputation, Schaap said. “It opens the aperture for us to be seen a little differently.,” he said.
The senior secured credit facility includes a $650 million term loan, a $100 million delayed draw term loan, and a $250 million revolving credit facility. The lender group included more than a dozen financial institutions, with ING Capital serving as sustainability structuring agent.
“As experts in sustainable finance, ING identified Aligned’s potential early on as a leader committed to solving sustainability challenges associated with data center infrastructure,” said Pim Rothweiler, Regional Head for Technology, Media & Telecom, ING Americas.
SLLs belong to a family of sustainable debt that also includes “green loans” in which the borrowing will directly fund a sustainable project. Sustainability-linked debt instruments are not project-specific, but look instead to ensure a company’s overall ESG performance through sustainable performance targets agreed upon by the company and its investors.
Under terms of the loan, Aligned will meet key performance indicators (KPIs) for its corporate performance on sustainability benchmarks, including:
- Renewable Energy: A commitment to match 100% of Aligned’s annual energy consumption to zero-carbon renewable energy by 2024.
- Sustainability Reporting: Transparency and continuous improvement across sustainability best practices. This target aligns the Company’s ESG reporting efforts with a leading global standard, maximizing consistency in ESG disclosure for Aligned stakeholders.
- Workplace Safety: A commitment to having / reporting on an industry-leading Total Recordable Incident Rate (TRIR).
In February, Aligned said it has matched the entire energy footprint of its data centers with purchases of renewable energy. Aligned is using a variety of options to meet this goal, including working with utility providers (like Arizona Public Service, which supports Aligned’s Phoenix data center campus) and procuring bundled Renewable Energy Credits. The company says its flexible renewable procurement strategy also allows it to adapt to specific customer requirements.
With its focus on “smart infrastructure,” Aligned specializes in solving capacity management challenges through innovation in cooling and the supply chain. Its offering is positioned to appeal to technology-focused customers, especially growing Internet companies. Aligned operates data center campuses in Dallas, Phoenix, Salt Lake City and Ashburn, Virginia.
Schaap says Aligned had significant leasing success in the first half of 2020. While some have speculated that the strong leasing in the midst of a global pandemic may represent hyperscale operators seeking to lock down future capacity, Schaap said that is not the case.