Chanel links €600m sustainability bond to science-based targets
Luxury fashion and fragrance giant Chanel has issued a €600m transaction for bonds linked to the company's progress against its 1.5C science-based targets.
The €600m inaugural transaction has been supported by BNP Paribas, and is considered the first in the luxury sector to be linked to the International Capital Market Association (ICMA) Sustainability Linked Bonds Principles, which provide guidelines for corporates to improve environmental reporting and disclosure to increase access to capital for projects that can reduce emissions.
The bond will help Chanel progress against carbon commitments that have been approved by the Science Based Targets Initiative (SBTi) in line with the Paris Agreement’s 1.5C trajectory.
The science-based targets were announced in March and cover the French multinational’s Scope 1 (direct) and Scope 2 (power-related) emissions, with Chanel pledging to halve its emissions by 2030.
To meet the promised Scope 2 reduction, Chanel has pledged to source 100% renewable electricity for its global operations by 2025. The company sources 41% of its electricity consumption from renewable sources in 2019 and expects this proportion to hit 97% by the end of 2021, as it invests in a mix of onsite arrays, new tariffs and Power Purchase Agreements (PPAs).
Regarding Scope 3 (indirect) emissions, the new targets include an ambition to reduce supply chain emissions by 40% by 2030, against a 2018 baseline, on a “per product sold” basis – or a 10% reduction on an absolute basis.
Chanel’s chief financial officer Philippe Blondiaux said: “The philosophy of Chanel is the creation of long-term value for the business and for society. 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.”
According to BNP Paribas, Chanel is the first unrated issuer to have a public set of bonds linked to sustainability ambitions. The way the bonds are aligned to the ICMA also means that investors will gain a better understanding of how to support the luxury sector with long-term decarbonisation through innovative finance.
The bank itself is taking steps to accelerate the low-carbon transition. Last year, BNP Paribas pledged to stop all funding for thermal coal globally by 2040, with an interim target of 2030 for EU Member States. The bank has since expanded the commitment to end the use of coal by 2030 to all OECD countries, with the 2040 target maintained for everywhere else. BNP Paribas will no longer accept new customers whose share of coal-derived revenue accounts for more than 25%.
BNP Paribas has also set a time-bound target for financing renewable energy development. In 2015, the bank pledged to double its renewable energy financing to €15bn (£12.83bn) by 2020. Having surpassed that target in December 2018, the firm will now work to provide a cumulative €18bn (£15.4bn) by 2021.
It is also amongst a cohort of financers to have joined the "green recovery alliance" set up by the European Parliament.
BNP Paribas’s chief executive Jean-Laurent Bonnafé added:: “Chanel is involved in a significant transformation program to decarbonise its business model. Sustainability-linked Bonds can be game-changers for accelerating climate action, and Chanel has demonstrated true leadership through the creation of an ambitious, transparent and scientific framework. We are honoured to support Chanel by structuring and issuing this ground-breaking transaction.”
IHS Markit is forecasting that the world economy will shrink by 5.5% in 2020, as a result of Covid-19. This contraction is around triple that felt during the 2008-9 financial crash, with most financial researchers also expecting a slower recovery.
But the pandemic seems to have placed a renewed focus on ESG or impact investing – particularly the ‘social’ aspect. JP Morgan recently polled investors from 50 global institutions, representing a total of $12.9 trillion in assets under management on how they expect Covid-19 to impact the future of ESG investing. 71% said it was likely to accelerate action.
Similarly, edie has explored what green finance will look like post-pandemic with a string of experts, with the overarching conclusion being that coupling of economic, social and environmental metrics and ambitions is the likely path.