Chanel's €600-Mil-Commitment to Sustainability

by HULA on Oct 02, 2020

Fashion firms from small to big to mega-size have made public pushes in recent years to show their environmentally-friendly credentials. From the leader in the field, Stella McCartney to the dead-stock burning Burberry, brands have flocked to push towards a more sustainable process and target. This time around, the French luxury label Chanel on Thursday raised a 600 million euro sustainability bond that is to be linked to the International Capital Market Association (ICMA) Sustainability Linked Bonds Principles.

WHAT ARE SUSTAINABILITY BONDS? WHAT DOES IT MEAN IN CHANEL'S CONTEXT?

Sustainability Bonds are bonds where the proceeds will be exclusively applied to finance or re-finance a combination of both Green and Social Projects. In Chanel's case, the ICMA Sustainability Linked Bonds Principles will provide guidelines for corporates (i.e. Chanel) to improve environmental reporting and disclosure to increase access to capital for projects that can reduce emissions. The bond's terms are also linked to the Paris Climate Agreement's 1.5C trajectory. The fact that the bonds are linked to the ICMA also means that current and future investors will gain a better understanding of how to support the luxury sector with long-term decarbonisation through innovative finance.

CHANEL'S COMMITMENTS -- Chanel Mission 1.5°

The firm has committed to moving to 100% renewable electricity for its operations by 2025. All its targets had been approved by the independent Science Based Targets initiative. Its progress will also be monitored and accessed regularly by a third-party verifier. Chanel has also outlined its target to decrease its own carbon emissions by 50% by 2030 and its absolute greenhouse gas emissions by 10% by 2030.

WHAT HAPPENS IF CHANEL FAILS TO MEET ITS TARGETS TO SUSTAINABILITY?

The bond is comprised of two different segments. 1. A five-year tranche that Chanel will have to repay at a heightened 100.5% of face value on maturity in July 2026 if "the company is not wholly reliant by then on renewable electricity," and a 10-year tranche, which "will cash out at 100.75%" premium in July 2031 if the firm falls short on its greenhouse gas emission targets. Chanel's chief financial officer Phillippe Blondiaux expressed that "The philosophy of Chanel is the creation of long-term value for the business and for society. This financing is entirely in line with these principles. In launching these bonds, Chanel hopes to support the development of the sustainable financing market and the wider social and environmental progress that this type of financing can advance. “There is a growing recognition amongst investors that they have a role to play in helping to tackle climate change, and we look forward to engaging with them.”