August 30, 2023 – Earlier this month, we announced that Ahold Delhaize's MSCI ESG rating was upgraded from AA to AAA. As an MSCI ESG rating measures a company’s resilience to long-term Environmental, Social and Governance (ESG) risks, it is a prominent benchmark in the sustainable financing world and is a widely used benchmark by investors.
In March this year, we also announced the issuance of our €500 million Green Bond which is part of a series of great strides in sustainable financing and reinforces our frontrunner position in this area. The Green Bond was also celebrated on July 19 with a gong ceremony at Euronext in Amsterdam.
So, what do these milestones mean and why is sustainable financing so important for Ahold Delhaize? Traditionally, investors used to evaluate performance based on financial measures alone. Today, investing takes more environmental and social issues – not just financial returns – into consideration. At Ahold Delhaize, we believe that finance plays a critical role in our sustainability journey because it provides the transparency that is needed to drive the necessary change.
To help you further understand how sustainable financing and a Green Bond works, see our seven Q&As on why they matter.
A Green Bond is a way to raise funds for projects with environmental benefits. It is a type of debt, issued by a public or private institution, and unlike other credit instruments, the collected funds of a Green Bond are only to be used for an environmental project or one related to climate change. Ahold Delhaize raised €500 million through its first Green Bond, with a term of 5 years, maturing on April 4, 2028. With the Green Bond, Ahold Delhaize makes a commitment to allocate all proceeds to projects that will help to accelerate the Race to Zero.
We plan to allocate the bond proceeds to financing and re-financing Ahold Delhaize's new or existing environmentally friendly assets with a positive measurable environmental impact. This includes green buildings, renewable energy, energy efficiency, clean transportation and pollution prevention and control.
We believe that sustainable financing is an important contributor in reaching sustainability goals. Issuing sustainable financing instruments underscores a company’s sustainability ambitions and brings long-term commitments to tackle sustainability targets such as reducing carbon emissions directly to investors.
Sustainable financing is defined as an investment decision that considers the environmental, social and governance (ESG) factors of an economic activity or project. It encourages companies to embrace sustainable principles, which can provide long-term social and financial gains. In 2019 Ahold Delhaize became the first retailer in the world to issue a euro-denominated Sustainability Bond, which amounted to €600m with a term of six years. Moreover, we became the first corporate European company to issue three different formats of sustainable financing.
There are many different forms of sustainable financing which can be categorized into two main financial instruments: equity and debt. At Ahold Delhaize, we focus primarily on debt and have issued four different products: Green Bonds, Sustainability Bonds, Sustainability-Linked Bonds and Sustainability-Linked Revolving Credit Facilities. All of these are financial instruments that link these finance terms to sustainability targets, however, there are some key differences.
In the case of Green Bonds and Sustainability Bonds, a company issues proceeds that are exclusively used to finance or re-finance sustainability related projects or activities. Our recent Green Bond will be used only to invest in ‘green’ projects which all directly contribute to the United Nation's Sustainable Development Goals and Ahold Delhaize’s Healthy & Sustainable strategy. The funds from the Sustainability Bond issued by Ahold Delhaize in 2019 were used to finance environmentally friendly projects and community initiatives in three categories: procurement of sustainably produced products, reduction of climate impact and promotion of healthier eating.
In the case of a Sustainability-Linked Bond or a Sustainability-Linked Credit Facility, a company links the cost of borrowing to the achievement of sustainability performance targets. The company is free to decide on the destination of the funds but the interest rates will be variable based on sustainability performance. The coupon on the Sustainability-Linked Bond issued by Ahold Delhaize in 2021 is linked to the company’s achievement in Scope 1 & 2 carbon emissions and food waste targets in 2025.
Even though the issuance of financial instruments is largely driven by the Treasury department, sustainable financial instruments do require involvement of the rest of the organization. In the example of our recently launched Green Bond, we have set up a Green Finance Framework in accordance with the 2021 ICMA Green Bond Principles to outline the key principles of the bond including the use of proceeds, process for projects evaluation and selection, management of proceeds and reporting. In short, adhering to these principles requires strong collaboration between Finance and Sustainability teams.
At Ahold Delhaize we have established a Green Finance Committee to oversee the process of evaluating and selecting eligible green projects. The Committee is comprised of members of the Healthy & Sustainable, Business Planning and Performance and Treasury teams. In addition, Ahold Delhaize's Finance community will work closely together with the Health & Sustainability team to ensure we can provide the required reporting on both the allocation and impact of the project.