Prada Becomes First Luxury Brand to Receive a Sustainability-linked Loan

Image: Prada

The Prada fashion group has become the first luxury brand to sign a sustainability-linked loan. This type of loan (amounting to $55 million for Prada) links annual interest rates to practices that help the environment. For instance, as Vogue Business explained, Prada’s rates will be trimmed if a certain number of stores are assigned a LEED Gold or Platinum certification; if employees meet a set number of training or hours; and if it meets targets for using Re-Nylon, a sustainable nylon substitute, for the production of goods.

Sustainability Loans, Summed Up: Sustainability or environmental, social and governance (ESG)-linked loans monitor a company’s performance along several ESG indicators as investors are increasingly calling for greater transparency. As Reuters explained,

  • Independent sustainability rating firms have been scoring companies’ ESG performance for more than two decades, but third-party ratings are gaining importance as sustainability-linked loans gather momentum.
  • Sustainability-linked loans totaled US$71.3bn at the end of the third quarter of 2019, and have more than doubled from US$32bn of deals raised in the same period in 2018.

Fashion’s Dirty Secret: The fashion industry faces numerous challenges in the effort to be more eco-friendly. Additionally, in an effort to maintain exclusivity, many fashion brands have taken to burning leftover merchandise worth millions in an effort to maintain scarcity. Prada isn’t a company that does this, but its high fashion peers like Louis Vuitton and Cartier have been heavily criticized for this practice. It shows that fashion needs to rethink many of its core tenets inorder to align them with true stewardship of our planet.

Why This Matters: While smaller companies have taken out these types of loans, this is the first time that a major fashion group has done so. The UN launched a formal alliance earlier this year to address sustainable fashion, and sustainability-linked loans are just one mechanism that can help apparel manufacturers and retailers walk the walk on sustainability. After all, textile production produces 1.2 billion tons of CO2 equivalent per year, that’s more emissions than international flights and maritime shipping. This doesn’t even account for the natural resource and animal and human welfare issues that the sector faces.

Italy FTW: At the same time that Milan-based Prada announced its sustainability-linked loan, the Italian government will require children in every grade to study sustainability and climate change.

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