Tesco Sustainability Linked Bond
22 January 2021 , an adaptive company, committed to reducing its green house gas emission
Tesco recently issued an inaugural sustainability-linked bond which was priced fair value at best, but still performed due to the greenium (green or sustainable bond premium) and scarcity value.
The bond issue was €750 million in size and this was the first time since April 2020 the issuer came to the bond market. The bond has a sustainability-linked feature that will result in a 25 basis point coupon step up if the company fails to reduce the companies Green house gas emissions by 60% in 2025 from 2015 levels.
Sustainability-linked bonds are a relative new addition to the sustainable bond category (up to now these were use of proceeds bonds for green and social projects). "This new feature enables more companies to step in the sustainable market and provides more diversification in this category", said Foppe-Jan van der Meij (Portfolio Manager). The issuer has historically been a cross over name between Investment grade and the High Yield category but after a company restructuring and a balance sheet repair they were included again in the Investment grade category late 2019. The tough lock downs and Brexit means a difficult period for UK companies. However, Tesco fairs relative well because of their experience in the ‘click and collect’-channel and benefits in lock down periods from their position as destination store to fill the basket with both private and branded goods in contrast to the discounters. The issuer enables us to generate a higher spread in a relative safe sector.
"ACTIAM regards Tesco as an adaptive company, that has committed to reduce its Green house gas emission in line with a 1.5 degree climate scenario and by doing so it is one of the first and few food retailers that committed to the Science-Based Target initiative", Nadja Franssen, Responsible Investment Officer, said. "Tesco’s targets can be considered ambitious and past performance has proven that the company is well on track in reaching its commitment. By investing in Tesco’s bond, ACTIAM is happy to contribute to their ambitions and hopefully to setting the example for other companies within the sector."
Tesco PLC, through its subsidiaries, operates as a food retailer. The Company offers online retailing, brick and mortar supermarkets, and a private-label brand of products. Tesco provides its services primarily throughout Europe, with additional activities in Asia. (source: Bloomberg).