GM, PepsiCo and Lenovo demonstrate the resilience of the green bond market
The market for bond issues related to ESG and sustainability strategies held steady in the first half of 2022, despite concerns about the downside. Additionally, the third quarter marked the start of an explosion of activity – with General Motors issuing one of the largest corporate green bonds to date, Lenovo getting involved with its inaugural bonds, and PepsiCo closing its second offer since 2019.
More on all three in a moment, but first, a recap: Global sustainability bond volume reached $225 billion in the second quarter, down 19% from a year earlier, but up 2% compared to the first quarter of this year, according to an analysis by Moody’s.
Moody’s reports that these types of issues, which include green bonds, social bonds, sustainability bonds, accounted for 15% of the total bond market, which is the highest ratio on record. Green bonds totaled $136 billion in the second quarter, and Moody’s analysis indicates the company continues to expect sustainable bond issuance to reach $1 trillion in 2022.
Indeed, the third quarter started strong, with Lenovo technology companyautomaker GM and food and beverage company PepsiCo all offered price-bond offers worth more than $1 billion in July.
Lenovo’s inaugural $1.25 billion bond offering includes 5.5 and 10-year bonds, which the company says have been bought by investors from many regions; most buyers, 41%, were from the Asia-Pacific region. Lenovo’s bonds will go to energy efficiency, renewable energy, green buildings, the circular economy “adapted products, production and processes” and clean transportation.
We have a need, there was an appetite.
GM bonds, which at $2.25 billion are billed as the second largest corporate showincluded two slices of banknotes maturing in 2029 and 2032. They will be used to finance or refinance projects as described in the Sustainable financing framework released earlier this year.
Among the categories outlined in this document are social connections related to supporting supplier diversity and workforce development; loans, leases and other financing products that help individuals, dealers and fleet managers switch to electric vehicles; and investments in clean transport technologies, including batteries and fuel cells, charging solutions, energy as a service, micro-grid and vehicle-to-grid development, etc.
PepsiCo’s offering of a $1.25 billion 10-year green bond is the company’s second such instrument to date: it closed a $1 billion green bond in 2019; as of December 31, 2020, it had used $858 million of the proceeds. According to PepsiCo latest green bond reportfunded projects included decarbonization efforts for its own and supply chain operations, sustainable packaging and plastics initiatives, and water sustainability.
For example, $98 million in revenue went toward a green research and development facility in Valhalla, New York. Overall, project sizes ranged from $60,000 to over $14 million; the average was $1.7 million, according to the report.
PepsiCo CSO Jim Andrew said proceeds from the new bond will be allocated according to the criteria set out in PepsiCo’s New Green Bond Frameworkpublished on July 14. Since the old one is almost fully allocated, it was necessary for the new show to fund parts of the business. PepsiCo Positive strategy (pep+), which focuses on regenerative agriculture, building a circular and inclusive value chain, and making products that are better for people and the planet. “We have a need, there was an appetite,” Andrew said.
There are four general categories described in the framework, each aligned with specific United Nations Sustainable Development Goals (SDGs) as well as the Principles of Green Bonds:
- Circular economy and virgin plastic waste reduction efforts, including investments that will help it buy more recycled PET or bio-based PET for its packaging; development of compostable or biodegradable packaging options; recycling infrastructure; and reuse the solutions. (SDG 9 — Industry, innovation and infrastructure, SDG 12 — Responsible consumption and production)
- Decarbonization and Resilience in PepsiCo’s Operations and Value Chain, such as energy efficiency and GHG emission reductions from industry, renewable energy supply, zero-emission transportation, including electric vehicles, and certified green buildings. (SDG 7 — Affordable and clean energy, SDG 11 — Sustainable cities and communities.)
- In search of a net positive impact for water, through investments in water recycling and reuse, watershed replenishment for high-risk areas, and water-saving technologies including drip irrigation for agriculture. (SDG 6 — Clean Water and Sanitation, SDG 12 — Responsible Consumption and Production, SDG 15 — Life on Land)
- Regenerative agriculture, including training to help farmers adopt practices that improve soil health, such as planting cover crops or reducing fertilizer and pesticide applications. (SDG 2 — Zero Hunger, SDG 8 — Decent Work and Economic Growth)
PepsiCo will report annually on how revenue is allocated, a disclosure that will be provided by a “nationally recognized company registered with the Public Company Accounting Oversight Board.” The company will also report various impact metrics such as how these projects increase the percentage of rPET or renewable or bio-based PET in its packaging, estimated emission reductions, avoided water use and water replenishment. and the number of acres using regenerative agriculture practices.
We seek to go as far as possible in the supply chain.
An overview of PepsiCo’s ESG objectives, as well as its latest progress report, illustrate the work to come. For example, PepsiCo aspires to help spread regenerative agriculture practices to over 7 million acres (a new goal starting in 2021); it is currently around 345,000 in the United States and Canada. Its water use efficiency has improved 18% from 2015, on its way to a 25% improvement by 2025, and PepsiCo has replenished more than 6 billion liters. So far, the company has reduced its absolute GHG emissions in Scopes 1 and 2 by 25% from a 2015 baseline, on track to its 75% reduction target by 2030 However, Scope 3 emissions across its value chain have grown 5% in most of the last reporting year, “largely due to unprecedented business growth.” The objective is to reduce these emissions by 40%.
When I asked Andrew about the Scope 3 metric, he highlighted a number of initiatives PepsiCo has taken to help its value chain adopt more sustainable business practices, including its program to help suppliers setting science-based targets and procuring renewable energy. “We’re looking to go as far down the supply chain as possible,” he said.
Another example of how PepsiCo will invest in its supply chain comes from Europe, where the company recently identified six industrial climate tech startups to help with supply chain pilots over the next year. Companies include: Industrial impulse and Bren Powerwho sell technologies to help reduce steam losses in production; Ozo-Innovationsthat reduces thermal energy, water and chemicals associated with cleaning manufacturing plants; UBQ Materialswhich transforms organic and non-recyclable plastics into bio-based thermoplastics; Security issues, which tracks packaging waste using blockchain; and Elateqwhich eliminates pathogens and contaminants in the water.