The fashion house Chanel placed €600 million in sustainability-linked bonds, or green bonds, that will finance the achievement of carbon reduction targets outlined in its Mission 1.5° plan.
The company aims to halve its own emissions by 2030, cut the greenhouse gas emissions of its supply chain by 10 percent in 10 years and only use electricity produced from renewable sources for Chanel’s operations by 2025. The progress of sustainability objectives will be assessed regularly by a third-party verifier.
BNP Paribas, the French bank which was joint structuring advisor and joint bookrunner on the deal with HSBC, pointed out that Chanel is the first unrated issuer to sell public bonds linked to its sustainability objectives and the bonds were oversubscribed. According to Bloomberg, demand was nearly three times the size of the placement.
The placement comprises two equal tranches with five and ten year maturities. The first tranche of €300 million expires in July 2026 and has an annual coupon of 0.5 percent, with a cash premium of 0.50 percentage points to be paid at maturity if Chanel does not meet its target of solely using renewable electricity in 2025.
The other tranche runs until July 2031 and bears an annual coupon of 1.0 percent. A premium payment of 0.75 percentage points is due if the company does not meet its carbon emission curtailing target by 2030.
It is the first time that Chanel, which is privately owned by the Wertheimer family, taps the public capital markets.
On Sept. 15, Burberry issued its inaugural sustainability bond. The £300,000,000 (€330,000m-$390,000m) bond bears an annual coupon of 1.125 percent and is due Sept. 21, 2025. The U.K. firm indicated that it is the first sustainability labeled bond issued by a luxury fashion company and will diversify its sources of funding. The proceeds will be used to finance and/or refinance eligible sustainable projects.
In February, VF Corp. issued a €500 million bond aimed at supporting its CSR and sustainability programs. The company claimed that it was the first green bond to be issued in the apparel and footwear industry.
Prior to Burberry’s green bond, other fashion companies relied on bank loans to finance their sustainability objectives. In November 2019, Prada obtained the first sustainability-linked financing in the luxury goods industry thanks to a €50 million five-year loan from Crédit Agricole. In June and July respectively, the Italian bank Intesa Sanpaolo granted an up-to €250 million credit facility to Salvatore Ferragamo and an up-to €400 million in funding to Moncler, a producer of down jackets. The terms of all three financings are linked to the achievement of environmental targets.