Tesco links £2.5bn loan to key emissions, energy and food waste targets
Tesco has established a £2.5bn revolving credit facility whereby rates and interest are tied to progress against the company's key environmental targets.
Under the terms of the agreement, facilitated by BNP Paribas and NatWest, Tesco will benefit from a lower interest rate loan margin if it meets its commitments to reduce Scope 1 (direct) and Scope 2 (power-related) emissions; to source renewable electricity through on-site generation and power purchase agreements (PPAs); and to redistribute surplus food.
On the emissions piece, Tesco was one of the first businesses in the world to have its targets approved in line with 1.5C by the Science-Based Targets initiative. It is aiming to reduce operational emissions by 60% by 2025, against a 2015-2016 baseline, and to reach net-zero by 2050.
Renewable energy will play a significant role in Tesco’s progress. The retailer has already switched to 100% renewable-certified purchased electricity across its operations in the UK but is striving to increase the proportion of energy it sources through PPAs and onsite generation. It recently signed deals to install rooftop solar at 17 stores in England and to source electricity from two Scottish windfarms.
As for food waste, Tesco recently reported that it has exceeded its internal 2030 target to halve food waste in line with Sustainable Development Goal (SDG) 12.3. New targets are expected to be announced soon. In the meantime, it is engaging actors across the value chain via WRAP’s food waste reduction roadmap. The framework, built in partnership with charity IGD, sets out how organisations can measure and act on wastage levels across a "farm-to-fork" approach.
Tesco’s chief financial officer Alan Stewart said the new financial instrument, which replaces a previous £3bn offer without links to environmental KPIs, is “a positive step in further integrating sustainability into all aspects of the business”.
“The ambitious science-based targets embedded into Tesco’s sustainability linked loan demonstrate how sustainable finance can be an accelerator for the progressive decarbonisation of a business,” BNP Paribas’ country head for the UK, Anne Marie Verstraeten added. “For UK corporates to shift to a net-zero pathway requires collaboration and innovation across multiple sectors – including from banks such as BNP Paribas.”
The revolving credit facility has a three-year term.
The trend towards sustainability-linked finance has been growing in recent months, particularly in sectors with a high environmental impact.
Since Shell announced last year that it would link the interest and fees paid on its $10bn (£7.5bn) revolving credit facility to progress against its carbon targets, similar financial agreements have been made by the likes of Finnish forestry giant UPM, food and drink ingredient supplier Tate & Lyle and beverage manufacturer Britvic.
The second half of 2020 has also been a busy time for green bonds, with a record $50bn issued in September alone, according to Bloomberg NEF. Among the businesses to have issued green bonds recently, to finance activities that will help them meet their environmental targets, are EDF, Chanel and Visa.