Stockholm (NordSIP) – While we have come to expect environmental fixed income to be dominated by green bonds from sovereigns, supranationals and agencies, energy companies and real estate firms, every-so-often, an innovative borrower comes to the market with a less standard approach. Such was the case on November 24th, when luxury company Chanel issued a €600 million dual-tranche sustainability-linked bond.
The structure of this security distinguishes it from the usual type of green bonds where proceeds are earmarked for specific projects, and the company’s bond framework is reviewed by a rating company such as second opinion providers CICERO or Vigeo Eiris. Instead, this bond is more akin to the SDG bond issued by Enel in November 2019, where based on a range of targets and a timeline to complete them and the borrower accepts to pay a penalty if it fails to reach those goals on time.
In Chanel’s case, the bonds are tied to the company’s ability to fulfil the goals of the climate strategy set in March 2020. According to the Chanel Mission 1.5°, as the strategy is called, the luxury firm committed to decreasing it own absolute (scope 1 and 2) emissions by 50% by 2030 (from a 2018 base year) – equivalent to 66% per unit sold. Chanel also committed to decreasing its supply chain (scope 3) absolute greenhouse gas emissions by 10% by 2030 (from a 2018 base year) – equivalent to 40% per unit sold.
“With the launch of CHANEL Mission 1.5°, the company made a clear commitment to accelerate the move to a lower carbon economy,” added Andrea D’Avack, Chanel’s Chief Sustainability Officer. “It is our conviction that all businesses need to take meaningful action within their own operations, and work alongside governments and civil society, to help protect the world’s most vulnerable communities and ecosystems from the impact of climate change. Today’s announcement represents a reinforcement of this commitment and we hope to harness our influence to engage with the investor community and be part of the solution.”
The tranches of Chanel’s sustainability-linked bond differ in maturity and interest rates. The first tranche is a €300 million bond maturing in July 2026 paying an annual coupon of 0.5%, with a cash premium payment of 50bps to be paid at maturity (on the principal amount of the notes) if Chanel does not meet its target of shifting to 100% renewable electricity in its operations by 2025. The second tranche is also worth €300 million but matures in July 2031. It will bear an annual coupon of 1% with an added cash premium payment of 75bps to be paid at maturity (on the principal amount of the notes) if Chanel does not meet its targets to reduce carbon emissions in Scope 1, 2, and 3 by 2030.
“The philosophy of CHANEL is the creation of long-term value for the business and for society,” Philippe Blondiaux, Chanel’s Chief Financial Officer, said. This financing is entirely in line with these principles. “In launching these bonds, CHANEL hopes to support the development of the sustainable financing market and the wider social and environmental progress that this type of financing can advance. There is a growing recognition amongst investors that they have a role to play in helping to tackle climate change, and we look forward to engaging with them.”