HI Uplift: LCI & SMFL launch Social Loan Framework in $1.6trn sustainable finance market

The Social Loan Framework has been launched into the sustainable finance market valued at $1.6trn in 2021.

LCI and Sumitomo Mitsui Finance and Leasing Co (SMFL) have launched the first Social Loan Framework for helicopter leasing, finance and operations, targeting the $1.6trn sustainable finance market.

The venture will require funds to be used for eligible and verified social projects. For LCI, this includes search and rescue (SAR) and emergency medical services (EMS).

Alan O’Rourke, chief financial officer, LCI told Helicopter Investor: “Helicopters play a vital and unique role in social good and it’s important that we, as an industry, strive to promote this. By doing so, we will gain meaningful access to the large and fast growing social and sustainable finance market and access new pools of external capital that will make an enormous difference to communities around the world.”

The framework has been established initially for LCI’s joint venture leasing operation with SMFL. It was developed in accordance with the internationally agreed Social Loan Principles developed this year by the Loan Syndications and Trading Association (LSTA).

A confluence of factors is driving the adoption of social loan frameworks in asset financing, he continued. “This includes, but is not limited to,: the maturation and education of finance markets generally; large physical asset replacement requirements; transition/infrastructure financing; financial reporting and transparency; and also general social consciousness around sustainability,” explains O’Rourke.

The helicopter leasing sector is moving along a well-established asset finance maturation curve, starting from balance sheet and tax-based structures pre-2000, and then onto secured bank lending, ECA financing and operating leasing post this period, he says. “We are still a little behind the commercial fixed wing-business (understandable given its size and scale), but we are moving along a similar path.”  

LCI’s first partnership with SMFL began in 2020 with the launch of a $230m helicopter leasing joint venture (JV) of 19 next-generation helicopters. Since then, the JV has expanded and now has a portfolio of more than 60 aircraft valued at over $600m.

“The aim will be to place a greater number of current and future helicopters into Social Loan Frameworks, measuring into the hundreds of millions of dollars over the next five years,” says O’Rourke. Another measure of success for LCI will be paving the way for other industry stakeholders to follow similar frameworks.

SMFL acquired a 35% stake in LCI in March and, together with LCI’s parent company Libra Group, plan to grow LCI’s business by $1.5bn over the coming years with significant capital investment by shareholders.

The partners are launching their new framework at a time sustainable finance has seen rapid growth over the in the past decade – reaching $1.6trn globally in 2021. Of this, $600bn was driven by the sustainability-linked loan (SLL) market, according to Refinitiv data. It’s a trend that’s likely to gather momentum – bearing in mind the increasing role of public/private partnerships, direct bills such as the Inflation Reduction Act, and decarbonisation requirements around the world, particularly in Asia.

But, for increased credibility, it is vital the industry adopts a strong, consistent and transparent framework around reporting, according to LCI.  It has already noted efforts from the International Sustainability Standards Board (ISSB), the Taskforce on Climate-related Financial Disclosure (TCFD), and the EU in the authentication of reporting.

“In the US, the Securities and Exchange Commission [SEC] is also advancing in mandating climate-related disclosures, albeit on a slower and more cautious basis,” says O’Rourke.  In Asia, several economies, such as Japan, China and South Korea, already have their own guidelines and taxonomies.

The Social Loan Framework is a key step for LCI, which has long highlighted the importance of sustainability across its commercial fixed-wing, helicopter and advanced air mobility sectors. “LCI is taking a leading role in supporting energy transition and was one of the first helicopter lessors to target offshore wind,” says O’Rourke. “We have a sizeable fleet dedicated to mission critical and socially responsible EMS and SAR operations, with aircraft that save lives every day.”

The company is an active member of Sustainable Aviation Fuel (SAF) user groups and is positioning itself at the forefront of the coming era in battery-powered flight, sustainable energy and advanced air mobility. (It is also a signatory of Aircraft Leasing Ireland’s (ALI) Sustainability Charter, focusing on 10 priority sustainability principles, including a commitment to achieving net zero by 2050).

The sheer scale of that objective demands partnership, according to LCI. O’Rourke sums up the need for collaboration by drawing on an example from Airbus Helicopters. The manufacturer has forecast demand for more than 16,000 units over the next 20 years, valued at more than Є120bn (about $130bn).

“No one stakeholder has access to this level of capital, so it is vital that we collectively come together and open up as many new financing sources as possible,” O’Rourke tells us.

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