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The likes of Chanel, Adidas and H&M are landing funds based on potential environmental, social and governance impact, relying on sustainability targets to secure both public and investor goodwill.
February 23, 2021 05:30
Over the past year, fashion companies from Adidas to Chanel have issued hundreds of millions of dollars in debt to meet environmental targets, betting that there would be plenty of investors interested in financing green projects. Last week, it was H&M’s turn.
The Swedish fast fashion giant made plans to issue €500 million ($607 million) in bonds that will go towards goals ranging from increasing the use of recycled materials to reducing greenhouse-gas emissions by 10 percent.
H&M’s announcement is the latest example of a trend growing across industries as companies seek to tap into appetite for environmental, social and corporate governance (ESG) financing. It extends to a variety of financial products from sustainability-linked bonds — a current favourite among fashion companies — to green and social-impact bonds that help businesses fund social and environmental projects across their companies and supply chains. Roughly $4 billion in sustainability-linked bonds were issued across all industries in January alone, over a third of the total issuance in 2020, according to BloombergNEF.
H&M’s new bond was
, signalling high demand from investors and a pathway for other fashion companies to follow.
Investors are increasingly looking to expand their ESG portfolios, while regulators cracking down on global supply chains have put pressure on brands to transition to greener alternatives. And as the pandemic restricts typical financing routes, companies are turning to sustainability-linked financing to fund capital-intensive environmental initiatives and increase brand value to both investors and consumers in the long term.
“We’ve seen during the corporate crisis that ESG funds have outperformed and companies that have strong sustainability performance have outperformed,” Elisa Niemtzow, vice president at nonprofit consultancy BSR,
told BoF in October
Funding sustainable and social change within the sector, however, isn’t without challenges. As ESG financing becomes increasingly popular, companies, investors and consumers need to evaluate what kind of financing goals and objectives should be in focus.
A New Frontier
So far, fashion brands are using the funds to direct capital to a variety of initiatives: Burberry’s sustainability bond included energy-efficient warehouses and sustainable cotton sourcing; Adidas’ will be used to source more sustainable materials and energy, as well as funding for under-represented communities.
But as is to be expected with developing markets, the framework for ESG financing is still incredibly broad with little oversight or compulsory guidelines. There have been efforts to remedy this: The International Capital Market Association has issued a series of principles and guidelines for companies and a variety of second or third-party certifiers are available, including Sustainalytics and credit rating firms like Moody’s, but methodologies vary. Many companies also adhere targets to the Science Based Targets initiative.
“We’re predicting much more accountability that’s requested from corporate shareholders,” said Maia Godemer, a sustainable finance researcher at BloombergNEF.
Still, the ecosystem of ESG evaluations and ratings, as well as investor knowledge surrounding sustainable financing within fashion, lacks comprehensive auditing and transparency from companies. Weeks before fast-fashion brand Boohoo
hit the headlines
for exploitative labour practices in its supply chain during the pandemic, for instance, the company received a “double A” ESG rating — identifying it as a leader in the industry for managing ESG risks — from finance firm MSCI. In the wake of the scandal, Boohoo conducted an
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