Tesco becomes 4th issuer to tap into Sterling market with a Sustainability-Linked Bond

We’re delighted to have supported Tesco with its successful Sustainability-Linked Bond (SLB) debut in the Sterling market, as it becomes only the 4th company to issue a Sterling SLB.

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Leading by example to help tackle social and environmental challenges

Tesco is a leading British multinational retailer with a chain of more than 3,600 stores in the UK and 536 stores in Central Europe, whilst also providing financial services through Tesco Personal Finance PLC. The company holds a leading market position in the UK with a 27.5% market share.

In 2009, Tesco became the first business globally to set a zero-carbon goal and later the first FTSE 100 Company to set science-based carbon reduction targets on a 1.5-degree trajectory. In September this year, Tesco announced an acceleration to its net zero targets – pledging to achieve net zero across the whole Group by 2035 (brought forward from 2050) and net zero across the value chain by 2050. The retailer has already achieved a 50% reduction in GHG emissions for the Group against a 2015 baseline and is sourcing 100%1 of electricity from renewable sources.

The “Little Helps Plan” is the framework Tesco uses to shape its long-term approach to sustainability. Under the framework's four pillars: People, Product, Planet and Places, the retailer addresses issues such as diversity and inclusion; healthy, sustainable diets; climate change; and, food poverty.

Sustainability-Linked Bond linked to Tesco reducing GHG emissions

Tapping into the Sterling market last in April 2020 with a £450 million 10-year issuance, which NatWest supported as Active Bookrunner, Tesco turned to the NatWest team again to help in the role of Active Bookrunner and B&D Bank with the retailer’s first Sterling-denominated Sustainability-Linked Bond (SLB), building on the constructive and ongoing ESG dialogue NatWest shares with Tesco.

Tesco introduced the SLB format to its financing strategy in January this year when it issued a €750 million 8.5-year SLB. In October 2020, the company had signed a £2.5 billion revolving credit facility, with the interest linked to the achievement of three ambitious environmental targets.

The new £400 million 7-year Sustainability-Linked Bond with a coupon of 1.875% is aligned to an agreed Sustainability Performance Target (SPT): the reduction of Scope 1 and 2 Greenhouse Gas (GHG) Emissions by 60% by 2025 against Tesco’s 2015 Baseline. If Tesco doesn’t achieve the target, a coupon step-up margin of 37.5 basis points will be applied to the bond for the final two coupon payments.

This issuance also helps boost the Sterling sustainable finance market which has been undersupplied in recent years in comparison to the Euro market with just a small handful of companies having issued Sterling-denominated SLBs prior to this.

Tesco’s SLB issuance is underpinned by their Sustainability-Bond Framework which was published in January this year. Tesco also holds ESG ratings of AA by MSCI, 17.9 by Sustainalytics, and C+ by ISS.

Good progress on journey to net zero

Liam Fahy, Corporate Financing & Risk Solutions, NatWest, commented:We’re delighted to have supported Tesco with its successful Sustainability-Linked Bond debut in the Sterling market, becoming only the 4th company to issue a Sterling SLB. This issuance reflects NatWest’s commitment to supporting companies on their journey towards net zero.”

Dr Arthur Krebbers, Head of Sustainable Finance Corporates, NatWest, added: “We are very pleased with the strong reception Tesco received for its Sterling debut in the SLB format and the wider recognition of Tesco’s impressive sustainability journey as evidenced by its repeat SLB issuance and it’s increasingly holistic sustainability strategy which includes new net zero targets across its full value chain. Their commitment to sustainability mirrors our own ambition to be a sustainable, purpose-led bank that champions the communities we serve and helps them to thrive.”

If you would like to hear from Tesco and their CFO, Imran Nawaz, please take a look at their press release here.

References

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https://sciencebasedtargets.org/companies-taking-action/case-studies/tesco

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