In the future, our sustainability and financial activities will go hand in hand. With the placement of a 900 million euro bond, the REWE Group has become the first German food retailer to issue a bond on the capital market. In doing so, it has directly linked its commitment to sustainability with its corporate financing. In an interview, Dr Klaus Wirbel, Head of Finance and Group Treasury, and Nicola Tanaskovic, Head of Corporate Responsibility, explain how this works.
Dr Klaus Wirbel, Head of Finance and Group Treasury, and Nicola Tanaskovic, Head of Corporate Responsibility, explain why the REWE Group has issued a bond with conditions linked to sustainability targets and how the proceeds will be used.
The REWE Group has broken new ground with its financing strategy. With the placement of the bond, the REWE Group has become the first German food retailer to issue a bond on the capital market and secured 900 million euros for investments. Dr Klaus Wirbel, Head of Finance and Group Treasury, and Nicola Tanaskovic, Head of Corporate Responsibility, explain why the REWE Group has issued a bond with conditions linked to sustainability targets and how the proceeds will be used.
Sustainability has long been a top priority for the REWE Group when it comes to its products and services. We have now linked our strategy for sustainable business practices with our corporate financing, becoming the first German food retailer to successfully issue a sustainability-linked bond. What exactly is a sustainability-linked bond?
Klaus Wirbel: A sustainability-linked bond, or SLB for short, is a bond that, in addition to interest payments, offers investors the assurance that we are also committed to achieving our sustainability targets. Specifically, by the end of the seven-year bond term, we pledged to reduce the carbon emissions of the Group companies which together generate the highest emissions within the REWE Group, namely, REWE and PENNY in Germany.
Nicola Tanaskovic: We have set ourselves some very ambitious targets. By 2030, for example, we are aiming for a 42 percent reduction in emissions from our own business operations, e.g. from the consumption of electricity, heat, and fuel for vehicles as well as refrigerant losses. Experts refer to these types of emissions, over which we as a company have a large degree of control and influence, as Scope 1 and Scope 2 emissions. Scope 3, on the other hand, refers to emissions caused by suppliers in the manufacture, transportation, and packaging of products. Here, too, we are aiming for a reduction of 42 percent by 2030, or approximately 30 percent for agricultural emissions, which are the most difficult to address. Given the complexity of our supply chains, this is highly ambitious.
Dr Klaus Wirbel
Group Director Finance at the REWE Group
Nicola Tanaskovic
Head of Corporate Responsibility at REWE Group.
Why have we set ourselves these specific targets?
Nicola Tanaskovic: REWE and PENNY in Germany have committed to these targets to align with the ambitious and science-based climate targets of the latest standard of the Science Based Targets initiative (SBTi). This recognised standard provides companies with a clearly defined path to reduce emissions in line with the goals of the Paris Agreement. Several thousand businesses around the world are already working with the SBTi.
Why are we issuing a sustainability-linked bond?
Klaus Wirbel: Banks and investors are becoming increasingly interested in promoting sustainable development. They want to know what the money will be used for and the impact of their investment in terms of sustainability. We are offering this bond for these investors.
Do lenders offer more favourable terms to companies agreeing to such pledges?
Klaus Wirbel: The interest rate agreed in connection with the issuance of this bond is not significantly different to the market level. However, a growing number of investors are calling for financing instruments linked to sustainability targets. Companies that fail to heed such calls will find less success on the capital market. And less demand usually means higher prices in the form of higher interest rates.
What will happen if we fail to meet the agreed targets?
Klaus Wirbel: We have also set a number of interim targets, which we will review and have audited on an annual basis. This creates transparency and shows us where we stand at all times. In the unlikely event that we fail to achieve the final target, a premium will be due at the end of the bond term.
Why did the REWE Group decide against issuing a green bond, whose proceeds would be used exclusively for sustainable projects?
Klaus Wirbel: The sustainability-linked bond gives us more freedom in terms of how we use the funds. The REWE Group requires significant levels of investment to meet ongoing challenges and extensive transformation requirements, especially in the areas of sustainability and digitalisation.
What will the REWE Group do with the capital raised from the bond issue?
Klaus Wirbel: The proceeds will be used to finance investments, for example, upgrading our logistics infrastructure, expanding or acquiring real estate, and implementing innovative projects.
Nicola Tanaskovic: Of course, we’ll also use some of the funds to make our business even more sustainable. This includes the construction of green buildings, the optimisation of refrigeration technology, and investments in sustainable construction, for example. We will also need to make significant investments in converting our truck fleet to electric vehicles, although such vehicles will only be available in sufficient quantities in several years.
How important will sustainability-linked bonds be in the future financing mix of the REWE Group?
Klaus Wirbel: The bond market is ideal for a company of the REWE Group’s size. We are pleased to have access to this market and will continue to be active there in the future. Of course, we will continue to include sustainability targets with all future bond issues. This is the path we have chosen and we’re staying on it. It is also what our capital market partners expect. However, in the future we will also include sustainability targets with other financing instruments, such as bank loans, whenever possible.
