H&M: 7-Times Oversubscribed Sustainability-Linked Bond Draws US$4.6 Billion In Orders

H&M Group’s newly issued €500 million (US$606 million) sustainability-linked bond (SLB) garnered huge interest on the market. The bond was 7.6-times oversubscribed, attract ingmore than US$4.6 billion orders in a strong sign of the greener investment sentiment taking over the financial industry. 

H&M has issued a €500 million (US$606 million) SLB with a maturity of 8.5 years, which drew in a whopping US$4.6 billion orders, the company announced on Thursday (February 18). The debut was so strong with investors oversubscribing by 7.6-times, allowing H&M to cut the interest yield rate offered by half between initial price talk and final terms.

By contrast to green bonds, SLBs are tied to companies meeting their defined sustainability targets. In H&M’s case, the bond, listed on the regulated market Euronext Dublin, will require the fashion giant to use more recycled materials and slash greenhouse gas emissions – or risk paying more interest if these targets are not met. 

The specific goals that the Swedish fast fashion giant outlined include ramping up the use of recycled materials to 30%, reducing emissions from its operations by 20% and reducing absolute Scope 3 emissions across its supply chain by 10% – all to be met by 2025. 

This type of bond creates a clear and transparent commitment and incentive for the company.

Adam Karlsson, CFO, H&M Group

“For H&M Group, sustainability is an integral part of our operations. This type of bond creates a clear and transparent commitment and incentive for the company,” commented Adam Karlsson, CFO at H&M, in a press statement. 

“It is an important step in our continued work to optimise the company’s capital structure, while at the same time providing investors with an opportunity to contribute to positive transformation of the fashion industry.” 

Commenting on the strong performance of H&M’s SLB launch, the Lars Mac Key, head of sustainable bonds at Danske Bank, one of the banks that helped market the offering, described it as a “blowout deal” that “opens the door for issuers to come to the market and meet the sustainability-focused investor community,” in an interview with Bloomberg. 

Today’s successful bond issue is proof that the financial market also values our ambitious sustainability work.

Helena Helmersson, CEO, H&M Group

It’s also a strong sign of confidence in green, sustainable or ESG-forward investing, especially as such approaches have proven to gain an edge over traditional investments amid the coronavirus-related market turbulence in 2020. 

“Today’s successful bond issue is proof that the financial market also values our ambitious sustainability work,” said Helena Helmersson, CEO of H&M Group.

However, there has also been more talk about the greenwashing aspect of SLBs specifically, with regard to whether they’re letting firms get a public relations boost to allay consumer pressure with relatively unambitious sustainability goals. 

Evan Bruner, project manager of independent ESG rating firm Sustainalytics, disagrees when it comes to the targets set out by H&M. 

If more retailers followed this route there will be a completely new industry for recycling clothes on a scale that is pretty far from where we are now.

Helena Lindahl, Portfolio Manager, Storebrand Asset Management

“Sustainalytics is of the opinion that the H&M Group Sustainability-Linked Bond KPIs are relevant and material to the issuer and that the SPTs are ambitious and impactful. The goal to reach 30% recycled materials as inputs is a highly ambitious sustainability performance target and represents leadership in the clothing industry,” Bruner commented. 

Helena Lindahl, portfolio manager at Storebrand Asset Management who bought the H&M bonds, is of a similar opinion, telling Bloomberg that “if more retailers followed this route there will be a completely new industry for recycling clothes on a scale that is pretty far from where we are now”. 

As conscious consumers continue to push brands to clean up their act, H&M’s issuing of an SLB is only the latest in a slew of sustainability commitments it has doubled down on in recent years. In an attempt to shed its reputation as a fast fashion behemoth, the firm is now taking action on almost every front – from partnering with innovative recycling tech startups to incorporating circular fashion services and even setting up a dedicated green B2B platform to drive industry-wide change. 

Lead image courtesy of H&M.