fixed income
Sustainable pursuits: corporate ‘pivots’ in action
In the sustainability report from our latest quarterly assessment of global fixed income, Alphorum, we look at how individual companies are taking substantive action to achieve sustainable milestones. Having already considered corporate credit, sovereign developed markets and emerging markets, in the coming days we will share insights into systematic research and, in our lead commentary, our emphasis on adaptability as we progress into 2022.
Need to know
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Sustainability goes mainstream
Given the lengthy build up to COP26, the climate conference was never going to live up to the weight of everybody’s expectations. For realists, there was plenty to feel positive about. Commitments to halting deforestation and phasing down coal should be welcomed, in addition to the IEA’s assessment that stronger pledges should drive down the rise in global temperature from 2.7°C to 1.8°C. However, perhaps more important in the long run will be the concerted mobilisation of private capital in pursuit of the transition to a sustainable global economy.
While action on climate change and biodiversity preservation needs to be more coordinated, capital is increasingly seeking opportunities in these areas. At the same time, beyond the obvious sectors and sustainability champions, plenty of individual companies have been carrying out invisible work in mapping out sustainability strategies in 2021. As these plans are made public, 2022 could be the year in which markets move definitively in the direction of sustainability, helping the global economy truly pivot towards a ‘green’ transition. This is no longer about sector or regional early adopters, but about sustainability going mainstream.
With that in mind, we thought we would use this first issue of Alphorum of 2022 to highlight some of the more interesting corporate sustainability stories from the past few months.
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Case study: Volkswagen Group The automotive sector passed a tipping point in 2021, with sales of electric vehicles (EVs) soaring and many of the major carmakers announcing concrete plans to deliver on ambitious sustainability commitments. One example was automotive manufacturer Volkswagen Group1, which recently tied a EUR1.8 billion loan to a specific sustainability target for the first time. The interest rate on the three-year agreement depends on the company achieving CO2 emissions targets for its European fleet. Group CFO Arno Antlitz promised to link financing even more closely to its target of being carbon neutral by 2050 in future deals. Volkswagen aims to leave the controversy of the ‘Dieselgate’ emissions scandal far behind by making 50% of its global deliveries all-electric vehicles in 2030. By the end of September 2021, it had delivered over 290,000 all-electric vehicles worldwide in the space of nine months — a year-on-year increase of 138% — making it the market leader in Europe, and second in the USA. Read more here. |
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Case study: Volvo Group, Daimler Truck and TRATON SE
In December 2021, leading commercial vehicles manufacturers Volvo Group, Daimler Truck and TRATON SE1 confirmed a joint venture to create a European high-performance charging network for battery electric, heavy-duty long-haul trucks and coaches. The three firms have together committed to invest EUR500 million in the project. Subject to regulatory approvals, the joint venture will start operations in 2022, with at least 1,700 high-performance green energy charging points to be installed and operating within five years. The aim is to increase the number of charging points significantly over time by seeking additional partners as well as public funding.
Read more here.
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Case study: Marks & Spencer Retailers are also keen to demonstrate their green credentials. Having shared its roadmap to net zero in September 2021, Marks & Spencer1 announced a new GBP 850 million revolving credit facility linked to its net-zero targets in December. The facility replaces an existing one due to mature in April 2023, with terms running until June 2025. Under the terms of the agreement, the delivery of targets aligned to its net-zero roadmap will mean the company benefits from a lower interest rate. The company worked with BNP Paribas to structure the facility, which focuses on four key metrics: zero deforestation, sustainable fibre sourcing, packaging reduction and reducing property emissions. Marks & Spencer aims for its entire supply chain to be net zero by 2040. Read more here. |
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Case study: Barry Callebaut Group
In October 2021, leading cocoa and chocolate manufacturer the Barry Callebaut Group1 inaugurated what they call the world’s largest and most sustainable chocolate warehouse. Built in partnership with real estate developer WDP1 and the city of Lokeren, Belgium, ‘The Chocolate Box’ represents a total investment of EUR100 million. The building incorporates the newest techniques in sustainable construction, covering solar panels, air treatment groups, rainwater and heat recovery, humidity control, insulation and geothermal energy. As a result, it can completely fulfil its own energy consumption and is the first building in Benelux with a ‘BREEAM Outstanding’ certification — the highest standard in sustainable logistics, reserved for the top 1% of innovative buildings. As well as being energy efficient, the building focuses on employee wellbeing through access to natural daylight, relaxation zones and e-bike storage.
Read more here.
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Case study: BASF The Chemicals sector faces obvious challenges in forming part of a net zero future. However, in late November German multinational BASF1 took a positive step by signing a 25-year Power Purchase Agreement (PPA) with multinational utility company ENGIE1 for renewable energy in Europe. ENGIE will provide BASF with up to 20.7 terawatt hours of renewable electricity over the timeframe of the agreement, which starts from January 2022. This will be used in low-emission chemical production at multiple European BASF sites. Initially power will come from ENGIE’s existing Spanish onshore wind sites, with the option for the firm to deliver BASF’s requirements from future onshore and offshore wind farms. Read more here. |
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Case study: Holcim
Building materials is another industry which is far from simple to decarbonise. However, Swiss multinational Holcim Group1 has long been a trailblazer for sustainability. In November it announced a commitment to reach at least 40% of sustainable financing by 2024, putting climate action, water preservation and safety at the heart of its plans. To support this commitment, it completed two new sustainability-linked financing transactions worth more than CHF3 billion (around £2.4 billion). Holcim’s net zero strategy focuses on four critical growth levers: developing low-carbon building materials; enabling smart design to build more with less; recycling and the circular economy; and decarbonisation of production. The company is a member of the 60-strong UN Global Compact CFO Taskforce, which aligns members’ finance strategies with the United Nations Sustainable Development Goals (SDGs).
Read more here.
As you can see from these examples, sustainability is no longer simply a talking point, in fact it is becoming a key pillar of companies’ strategies on which substantive action is being taken. We expect this trend to blossom in 2022 — savvy investors should be taking this into account in their investment decisions.
To read the full Q1 2022 issue of Alphorum, please use the download button provided.
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Sources
[1] Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.
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