Within two weeks of starting his new role as treasurer of Starbucks, Drew Wolff was tasked with launching a green or sustainability bond.
One month later, on 21 May 2016, Starbucks issued the largest ever corporate sustainability bond.
The bond, which raised half a billion dollars to be put towards the coffee chain's sustainability activities, has 10 year tenor and coupon of 2.45%.
"The board felt funding these sustainability efforts should be a central part of our overall funding, and a sustainability bond was great way to do this"
Drew Wolff, Starbucks
Starbucks, which is an infrequent issuer of bonds, chose to enter the nascent social and sustainability bond space because it met with the company's strategic goals, says Wolff.
"Starbucks has a relatively low level of leverage and is an infrequent issuer," he explains. "However we had support from management, which took the view that sustainability is integral to our business model and not viewed as a separate 'cost'.
Deal highlights:
Issuer: Starbucks
Deal type: Social and sustainability bond
Deal structure: Senior, unsecured
Deal format: Use of proceeds sustainability bond
Issuer rating: A/A2/A
Governing law: US Law
Lead managers: Morgan Stanley, Bank of America Merrill Lynch (BAML) and Wells Fargo. BAML was also the sustainability structuring agent.
Size: $500 million
Maturity: 10 years
Coupon: 2.45%
Use of proceeds: Buying sustainable coffee
External review: Sustainalytics provided the second opinion
Highlights:
• Largest sustainability bond from a corporate
• Novel use of proceeds
"The board felt funding these sustainability efforts should be a central part of our overall funding, and a sustainability bond was great way to do this."
The bond acted as lightning rod for a lot of separate social responsibility efforts at the company and helped align financing and these efforts for the first time, added Wolff.
One of the major uses of the proceeds from the bond to purchase coffee certified against the Coffee and Farmer Equity (CAFE) standards by a third-party verifier, SCS Global Services.
In 2004, Starbucks developed the CAFE environmental and social standards for its coffee growers. They include standards relating to treatment of workers and use of pesticides.
However, Starbucks went one step further with its sustainability bond and provided an additional $50 million of loans to coffee growers to help them meet these standards.
"We saw this as an opportunity to grow our sustainable coffee practices," says Wolff. "It brought different parts of the company together on the issue of sustainability. Beyond this, the sustainability bond is really a commitment to increased transparency and reporting, and aligned internal resources to do that."
Starbucks will report annually on the projects and their impacts, with an audit on the use of proceeds to be provided by Deloitte.
The success of the bond encouraged the company to come back to the market with another sustainability bond in 2017, says Wolff.
The coffee retailer issued its second sustainability bond, in the Japanese market in March 2017, raising JPY85 billion ($736 million).
Starbucks remains committed to the market for sustainability and may issue green bonds to finance its renewable energy activities, adds Wolff.