Apparel giant H&M Group has issued a EUR500m (US$607m) sustainability-linked bond that is aligned to targets such as increasing the share of recycled materials used to 30% by 2025.

Sustainability-linked bonds are new in the bond market. In contrast to green bonds, where the funds are linked to specific projects, sustainability-linked bonds are coupled to the company meeting a number of defined sustainability targets. If these targets are not met, bondholders accrue additional payments.

In a statement yesterday (18 February), the Swedish apparel retailer said the bond has a maturity of eight and a half years, while the annual coupon rate is 0.25%.

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It added that due to a surge in interest, the bond was 7.6 times oversubscribed.

“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. 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,” said Adam Karlsson, CFO.

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The targets that H&M Group has committed to achieving by 2025 are:

  • Increase the share of recycled materials used to 30%.
  • Reduce emissions from the group’s own operations by 20%.
  • Reduce absolute Scope 3 emissions from fabric production, garment manufacturing, raw materials, and upstream transport by 10%.

“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 SPT (Sustainability Performance Target) and represents leadership in the clothing industry,” said Evan Bruner, project manager, Sustainalytics.

Helena Helmersson, CEO of H&M Group, added: “Our customers are showing on a daily basis that they appreciate H&M Group’s offering with the best combination of fashion, quality, price and sustainability.”

She noted the successful bond issue is proof that the financial market also values the group’s ambitious sustainability work.

The bond will be listed on the regulated market Euronext Dublin and has been placed with the assistance of BNP Paribas, Commerzbank, Danske Bank, SEB and Standard Chartered. SEB also acted as advisor for the Sustainability-Linked Bond Framework.

A number of companies in the apparel industry have recently issued green or sustainability-linked bonds. 

UK supermarket retailer Tesco launched a bond that, for the first time, is linked to the company’s commitment to reduce greenhouse gas emissions last month.

While VF Cop said yesterday (18 February) it has fully allocated the net proceeds from its inaugural green bond issued last year, which totalled about EUR493m (US$594.8m), to 13 of the group’s eligible sustainability projects worldwide.