APAC real estate firm ESR has secured a Sustainability-Linked Loan (SLL) to develop a data center in Hong Kong.

ESR Group announced this week that it has closed the first SLL in Hong Kong for a brownfield data center project.

The HK$1.6 billion (US$205m) SLL will be used to fund the conversion of a building in Kwai Chung into the 21.3MW ESR Kwai Chung Data Centre HK1.

Brilliant Cold Storage Tower 2 Hong Kong ESR.png
– Google Maps

The five-year secured, committed facility has a tiered incentive mechanism where ESR will be entitled to an interest reduction when the project’s sustainability targets are achieved.

Hong Kong power company CLP Power is providing energy audit and advisory services to ESR to formulate the Key Performance Indicators of the SLL. These include sustainable features such as a diesel-generator-free construction site and a green wall in the façade.

Crédit Agricole CIB acted as the Sole Sustainability Advisor and Coordinating Bank,

and SMBC and UOB acted as Sustainability Agents.

Stuart Gibson and Jeffrey Shen, ESR Group co-founders and co-CEOs, said: “We are very proud of the ESG credentials of our data center in Hong Kong and thank Crédit Agricole CIB, SMBC, and UOB for supporting it with the SLL.

"With the continued increase in data center demand, our support from CLP Power also helps to bolster tenants’ environmental commitments and helps Hong Kong achieve its carbon neutrality goals.”

ESR acquired the building, a former cold storage facility on a 3,214 sqm (34,600 sq ft) plot, in 2021. Later that year it filed plans to convert the property – known as Brilliant Cold Storage Tower 2 – into a 15-story, 40MW data center.

The renovation would add around 2,450 sqm (27,370 sq ft) of space to the ground and lower ground floor, taking the total floor space to around 32,700 sqm (352,000 sq ft).

CLP Power managing director Joseph Law said: “This project is a significant milestone in the collaboration between CLP Power and ESR towards decarbonization. By using a sustainability-linked loan to create a hyperscale data center, we hope it can serve as an example to promote environmentally friendly practices and the development of green buildings.

"We look forward to collaborating with ESR on similar projects and exploring new opportunities in Hong Kong and across the Greater Bay Area."

ESR is one of a number of logistics & warehouse industrial real estate firms looking to move into the data center space. The likes of Prologis, GLP, Segro, P3, and others are also looking to develop facilities in the US, Europe, and Asia Pacific. ESR last year closed a $1 billion data center development fund and plans to build 300MW of data centers across APAC.

The company, with backing from investors such as Warburg Pincus, has plans to build a data center ecosystem across the region - buying a data center in Osaka, Japan, in April 2021, which it plans to develop into a three-facility campus.

It also announced plans for a 20MW data center in Tokyo last year and is partnering with Stack for another data center in Osaka as well as Seoul in South Korea.

ESR has previously said it is developing a portfolio of data centers in Hong Kong, Osaka, Tokyo, Seoul, Sydney, Mumbai, and Singapore. ESR subsidiary ARA Asset Management also has a data center footprint through its LOGOS Group unit, which has partnered with Pure Data Centres for a 20MW facility in Indonesia.

Carmen Tsang, head of sustainable investment banking for Greater China at Crédit Agricole CIB, said: “We congratulate ESR for leading the way with the launch of this innovative sustainability-linked loan – this is a fruition of the company’s ongoing dedication in striving towards sustainable and green practices in its energy-efficient data center.”

Whether general-purpose sustainability-linked loans or project-specific green bonds, sustainability-linked financing is quickly becoming a common trend amongst data center and telco firms. The likes of Equinix, AirTrunk, Verizon, Aligned, Telefónica, NTT, KPN, Baidu, Atos, Digital Realty, Flexential, and Nabiax have all raised new green-tied funds or converted existing debt to include interest rates tied to sustainability and ESG goals.

Hong Kong data center operator SUNeVision secured a HK$3 billion (US$383.4m) SSL from HSBC in June 2023.

Ricky Ng, head of wholesale banking, UOB Hong Kong, said “We are pleased to have played an active role in contributing to ESR’s decarbonization journey. We hope that the success of this transaction can pave the way forward for future sustainable data center financing as we work with our clients to build a greener and more sustainable tomorrow for all.”