Starbucks Corporation announced that it has completed issuance of a $1 billion Sustainability Bond. It is the largest Sustainability Bond the company has issued to date and follows two previously issued Sustainability Bonds in 2016 and 2017.
“We are very pleased to see that our new Sustainability Bond attracted significant investor interest and was oversubscribed,” says Patrick Grismer, CFO of Starbucks. “The bond demonstrates Starbucks commitment to meaningful, continual progress toward our aspiration of sustainable coffee, served sustainably. It also illustrates a trend toward heavier interest from investors in our socially and environmentally focused projects – in this case supporting coffee farmers and leading in green retail.”
Grismer added that Starbucks leadership in social and environmental responsibility “is a defining element of who we are as a company. Our intent is that, by issuing a Sustainability Bond, we’re providing investors an opportunity to participate in our sustainability efforts, and our hope is that this inspires others to pursue more sustainability-related investing opportunities.”
Support for Coffee Farmers
As with the two previously issued Sustainability Bonds, funds will support ethically sourced coffee. The scope includes purchasing coffee that is verified by Coffee and Farmer Equity (C.A.F.E.) Practices; the continued development and operation of Farmer Support Centers and agronomy research and development centers in coffee-growing regions around the world; and new and refinanced loans to coffee farmers made through Starbucks $50 million Global Farmer Fund.
New to the Starbucks Global Farmer Fund and supported by funds from the bond, Starbucks has partnered with the lending organization, responsAbility, on a $20 million equity investment to provide financing to coffee communities in Latin America, Africa and Asia in the form of loans that can help replace old, less productive trees with new trees, buy new equipment, and take other actions to improve their coffee crops’ quality and productivity.
“We are excited to have the Starbucks Global Farmer Fund as a significant investor,” says Anand Chandani, Global Head of Agriculture Debt Financing at responsAbility. “We see synergies with Starbucks in building the sustainable coffee value chain, supporting smallholder farmer engagement and in fostering market linkages.”
As a new, expanded scope, the bond will also help fund the company’s Greener Retail commitments, including its Greener Stores initiative, announced in September, to design, build and operate 10,000 Greener Stores globally by 2025. The open-source Starbucks Greener Store Framework, which Starbucks developed in partnership with World Wildlife Fund (WWF) and SCS Global Services, focuses on commitments to energy efficiency, renewable energy, water stewardship, waste reduction and more. In addition to Greener Stores, funds will also support investments in greener cups and packaging as Starbucks works to reduce our environmental footprint with such projects as the global rollout of strawless lids and identifying the next generation of recyclable and/or compostable cups.
According to Sustainalytics, which provided a Second-Party Opinion on the bond, Starbucks has aligned its Eligible Sustainability Projects in the new bond with the priorities outlined in the U.N. Sustainable Development Goals, established in 2015, as well as with the 2018 Sustainability Bond Guidelines (SBG).
“We applaud Starbucks efforts to broaden its social and environmental programs and to align its eligible projects with the U.N. Sustainable Development Goals,” adds Heather Land, executive director of Sustainalytics’ Sustainable Finance Solutions team. “In addition, Starbucks inclusion of its Greener Retail initiative is a meaningful addition to its Sustainability Bond.”
As with any Sustainability Bond and outlined in the Green Bond Principles, the company must report on how the funds are spent and the impact they have made against the initiatives. Starbucks will publish annual updates of the allocation of the proceeds throughout the term of the sustainability bond until the proceeds have been fully allocated to projects meeting the eligibility criteria. These updates will be reported publicly at www.starbucks.com and may include additional descriptions of select projects funded with sustainability bond proceeds and their environmental and/or social impacts.
“Morgan Stanley is proud to support Starbucks in their third and largest Sustainability Bond in three years, and their continued commitment to the U.N. Sustainable Development Goals,” says Audrey Choi, Chief Sustainability Officer at Morgan Stanley, which acted as the Sustainability Structuring Agent and a joint book-running manager on the transaction.
“The market capacity to raise $1 billion of earmarked funds directed to Starbucks existing and new sustainability objectives, including the design, construction and operation of 10,000 Greener Stores globally by 2025, demonstrates increasing awareness and growth of support of sustainability objectives amongst the investor community,” says Dolph Habeck, Head of ESG Debt Syndicate at Morgan Stanley.
The 30-year Sustainability Bond is part of a larger bond offering of $2 billion, with another $1 billion bond issued for general corporate purposes including the repurchase of common stock as part of the previously communicated $25 billion shareholder return target. The issuance is in line with Starbucks commitment to a leverage cap of 3x lease-adjusted EBITDAR and a minimum credit rating of BBB+Baa1.
Funds from the bond will support Starbucks ongoing work around ethically sourced coffee, including its work around agronomy research and development and the donation of coffee trees to farmers.