The coffee company adds to the growing menu of bonds tied to social and environmental projects with the first ever Yen sustainability bond by a non-Japanese corporate.
As the creator of the Iced Coconut Milk Mocha Macchiato and the Unicorn Frappuccino, Starbucks is never shy of trying new things. That includes its approach to the capital markets. Last month, the U.S.-based coffee company debuted in the international markets with the first ever yen sustainability bond by a non-Japanese issuer.
The Y85 billion ($740 million) seven-year security issue, underwritten by Morgan Stanley and Japanese investment firm MUFG, is similar to Starbucks’ landmark $500 million 10-year sustainability bond in the U.S. market last year—itself the first corporate bond of its kind.
The proceeds of both deals tie to coffee purchases from a stable of ethically sourced coffee growers, as well as other measures to support its coffee supply chain. The fact that investors bought both demonstrates the extent to which institutional bond buyers have accepted social and environmentally responsible behavior by corporates as actions which should be funded.
“Starbucks epitomizes how any corporation in any industry can now take a look at its business and identify how it operates in a socially responsible manner, and then offer investors the opportunity to support that,” says Navindu Katugampola, head of green and sustainability bonds at Morgan Stanley.
Sustainable bonds are similar to green bonds, with the exception that their proceeds are tied to social projects rather than environmental ones. Starbucks chose yen as its issuing currency, because the coffee company has a large business presence in Japan. Japanese investors are also believed to be seeking more investments in social impact initiatives, according to Tammy Serbee, Managing Director in Global Capital Markets for Morgan Stanley in New York.
“Starbucks is a company that takes sustainability very seriously, and given that they have yen-denominated assets, we suggested they seek attractive funding opportunities in Japan. With sustainability becoming a bigger focus in the region following 2015’s COP 21 Paris Agreement1, we thought it made sense to marry the idea with Starbucks’ prior Sustainability Bond framework,” says Serbee.
The deal adds to a growing menu of sustainable investing products, at a time when the demand for them is increasing. In December Poland issued a EUR750 million five year green bond2, the first time a sovereign has introduced the green fixed income security concept to government bond investors. France followed with an EUR7 billion 20-year green government bond early this year3. Both are using green bonds for projects required to meet pledges under the Paris Agreement.
The greater the number and kind of issuers, as well as the type of securities they offer, the more interested investors become in sustainable investing. “One of the reasons why we are seeing a growing interest in social bonds is because people want diversity in their SRI (sustainable and responsible investing) portfolios – they want different kinds of issuers,” says Andrew Salvoni, head of Morgan Stanley’s green and sustainable bond syndicate desk. “Many investors also want to get involved in other causes they are passionate about.”
The green bond market has the potential to surpass its 2016 record deal volume of $93.4 billion4, according to market commentators like Bloomberg New Energy Finance. It could significantly exceed that if more governments turn to green bonds as a way of enlisting private investors into their fight against climate change.
According to a report published by the International Energy Agency in 2015, the full implementation of climate pledges could require the energy sector to invest $13.5 trillion in energy efficiency technologies by 2030, or about 40% of total energy sector investment5.