For what purposes green bonds are used
European retail market leader H&M announced its intention to float green bonds worth a total of 500 million euros. The payments on the company’s bonds will be made through the implementation of various sustainability goals.
The Swedish retailer decided to keep up with the times, and turned its attention to the promising direction of green bonds. They are designed for a period of 8.5 years, and will be associated with environmental protection projects. The main feature of such bonds will be their focus and impact on H&M. Green bonds will be a kind of incentive for the retailer to increase the use of recycled materials and reduce carbon dioxide emissions from manufacturing products.
The company’s key goal is to replace all materials used in the manufacture of clothing, footwear and accessories with completely environmentally friendly or recycled materials by 2030. For example, now the use of such components is more than 60%.
H&M is not the first company in the fashion industry to use green bonds. Previously, bonds related to environmental projects were placed by Chanel, retail chain Tesco (UK) and LafargeHolcim (France), a manufacturer of building materials. This type of securities was actively introduced by the energy corporation Enel.
Companies that issue green bonds tie them to various environmental projects, while designating a timetable for their execution. If the issuer fails to achieve this objective, then it will have to pay additional compensation to the owners of the securities. The latter is a coupon of a higher value than the original investment, for the life of the bond or when the maturity date comes. For example, fashion house Chanel said it would increase the rate by 0.75% on bonds through 2031 if it did not meet its goal of reducing emissions in production.
In 2019, Apple launched euro-denominated green bonds. The papers, worth 2 million euros, have two maturities of 6 and 12 years. The company uses the proceeds to develop innovative solutions for energy efficiency. In addition, Apple uses various mechanisms to make its products accessible to recycling. Particular attention is paid to reducing harmful emissions, both in production and in the performance of supply chains.
According to experts, the corporation clearly follows its goals, its use of the very concept of green bonds fully meets the requirements for green bonds.
