By Bridget Boulle
Unilever last week joined the green bonds market with a landmark Sterling ‘Green Sustainability’ bond linked to their “Sustainable Living Plan”. This is a 4 year corporate bond, £250 million, 2% fixed rate.
The initial price indication given was G + 70-75 bps, before being refined to G+ 70 area. The deal finally priced at G + 67 bps “off the back of strong investor momentum”.
The bond was more than 3 times oversubscribed within 3 hours! There were more than 100 investors, mainly fund managers, pension funds and insurers, with a number of first-time buyers of Unilever bonds, attracted by the green aspect.
We’re pretty impressed with the bond. It’s linked to projects that improve the energy and water efficiency in the company’s internal operations, where the threshold for each project to be included is that it must reduce CO2 emissions or water use by 50% if a new project, or 30% if a retrofit, against a 2008 company baseline.
They’ve provided a high level of transparency by releasing a lot of information to investors and making the "second opinion" by Norwegian standards consultancy (and Climate Bond Standards verifier) DNV GL available publicly on their website.
They've also had an auditing firm look over the bond and provide assurances that the funds are being tracked and directed to the stated projects – all good things and very much in line with what we would expect.
This is great news. We were actually a little sceptical when we first heard about the bond, not because we have any problems with Unilever (they have a good reputation on ESG issues) but because we thought the bond might be straying from the Green Bond Principle’s insistence that green bonds should be linked to assets or projects rather than to a company’s ESG rating. But it does tick lots of boxes.
The bond takes us into new territory, as it's the first bond linked to internal company efficiency upgrades.
We argue that green bonds should be issued by companies building or financing climate solutions (i.e. linked to assets, loans, projects being - building a wind farm etc.) or linked to projects within a company that make it substantially more resource efficient (e.g. industrial energy efficiency processes). Unilever is in this second territory.
The current pipeline of projects in which the proceeds of the bond will be invested includes: a laundry liquid detergent factory in Johannesburg, South Africa; a laundry powder facility in Sichuan, China; a Home and Personal Care factory in Selcuklu-Konya, Turkey; an ice cream factory in Johannesburg, South Africa; the expansion of a spreads factory in Kansas, US; and the ‘Lean & Green Freezer’ cabinets project in Turkey, Russia and the US.
We see one of our jobs as pushing the market to ensure environmentally credible issuance, and we do have one niggle: for the retrofits we're missing before and after reporting for specific projects. Unilever has chosen to use a company-wide baseline as a benchmark rather than disclose the extent of improvement in the specific plants being tied to the bond. In an asset-focussed approach, this makes it difficult to understand the relative impact of each individual project, which is what we want to know. Starting with a company-wide baseline could mean that individual projects actually have marginal impact or are otherwise cherry-picked. It would be good to know what those metrics are.
This niggle would be negated if Unilever decided to report on the “before and after” metrics for individual projects (its possible they may decide to do this in the future). To their credit we don't see this as a big issue in the context of Unilever's ambitious company-wide targets; but it's not explicit, and would be good to be show as an example to others.
Overall, this bond is a good step forward and we’re happy that it has been taken by Unilever, a leader in the space.