Our thinking

Money (for) Trees

24 February, 2020

Sustainability loans, on which interest rates are lower if environmental targets are met, have been around a while, but the last few weeks have seen some surprising new entrants into the market, suggesting green investing could be on the brink of going mainstream.

Last week, Prada announced a $55m sustainability loan from Credit Agricole Group over a 5-year period to invest in Econyl (a recycled nylon made from plastic recovered from oceans), ‘greener’ retail operations and employee training in sustainability practices.

PepsiCo also announced its first $1bn green bond (to join its existing $34bn of debt) to support investment in more eco-friendly packaging and cleaner transportation, tree-planting and operational water-use efficiency projects.

The beauty of these investments is their target-driven nature – there are no grey areas when it comes to financially-tied commitments – which is a huge incentive for companies to do their utmost to achieve these environmental commitments in order to minimise interest payments. And the financial sector, which often struggles to understand the impact of its investment strategies, gets to take steps towards managing its footprint too. So really, it’s a win-win for everyone involved: investors still see a return on investment, whilst enabling a lower-carbon future; companies benefit from lower interest rates, and existing human consumption habits will ultimately tread lighter on the planet.

A $1bn green bond is only a drop in the ocean compared to the $5.8tn US bond market, but is certainly a step in the right direction that has the potential to drive sustainability faster.