Starbucks to issue sustainability bond

Channels: Debt, Green Bonds

Companies: Starbucks, Georgia Power, Sustainalytics

Coffee giant Starbucks is preparing to issue a labelled 'sustainability bond' to help improve the environmental and social impacts of its supply chain, Environmental Finance can reveal.

The US corporation, which claims to be the fourth largest coffee retailer in the world, with shops in 70 countries, has created a framework under which to issue the notes. No further details are known about the financial aspect of the bonds, but they are expected to price today.

In 2004, Starbucks developed a set of environmental and social standards for its coffee growers, known as the Coffee and Farmer Equity (CAFE) Practices. These include standards relating to treatment of workers and use of pesticides. The firm has been criticised for not falling in line with globally-recognised standards, but claims that relevant standards did not exist at the time it created the CAFE Practices.

Proceeds from any transaction issued under the new programme can be used for projects under three categories:

  1. The purchase of coffee that is certified against the CAFE Practices by a third-party verifier, and expenditure relating to the transportation and storage of verified coffee. Starbucks last year claimed 99% of its coffee already met this criteria, so the proceeds could potentially be used to finance existing operational costs rather than improving environmental performance. This use of proceeds for operational requirements has caused controversy previously in the green bond market – Georgia Power, a US utility, came under fire last year when it issued a green bond which would be part-used to finance power purchase agreements for renewable energy projects.
  2. The construction and operation of 'farmer support centres' to help farmers implement CAFE Practices and improve farming techniques. Starbucks currently has eight such centres – in Costa Rica, Rwanda, Tanzania, Ethiopia, Colombia, Guatemala, China and Indonesia. The centres are staffed by agronomists and sustainability experts who train and advise farms – including those not in Starbucks' supply chain – on coffee-growing techniques to help reduce costs, improve quality and reduce pests and diseases, among other things.
  3. Lending to coffee farmers at 'reasonable interest rates'. Last year Starbucks pledged to lend $50 million to coffee farmers – who are normally considered high-risk clients by mainstream lenders – via ethically-focussed lending organisations. Starbucks claims it requires the intermediaries to offer farmers "the lowest rate possible" and plans to introduce a cap.
 

The majority of proceeds from the issuer's sustainability bonds will fund future projects.

Starbucks has received a second-party opinion on its framework from Sustainalytics. The provider described the framework as "robust and credible", saying the company "is effectively targeting its sustainability bond proceeds towards environmentally-friendly agricultural practices, and the socioeconomic advancements and empowerment of coffee farmers".

"Sustainalytics has found no evidence of any significant supply chain controversies involving Starbucks," it added.

Starbucks is considered to fall within the top 6% of its peers in the consumer services industry under Sustainalytics' assessments of the environmental, social and governance performance of companies globally.

But, Sustainalytics points out, coffee suppliers verified under CAFE Practices are not necessarily meeting best practice standards – or even standards above basic legal requirements. Suppliers can achieve verification, at the lowest level, by complying with all 'zero-tolerance' indicators on the CAFE scorecard. These include meeting national minimum wage requirements and not using banned pesticides. However, suppliers can also secure 'preferred'- or 'strategic'-level verification by exceeding these basic requirements.

Starbucks will report annually on the projects and their impacts, with an audit on the use of proceeds provided by Deloitte.

Sophie Robinson-Tillett