“This is an exciting product that has great potential on the market and can contribute to a sustainable transition,” says Susanne Gløersen, Head of Climate and Sustainable Finace in SEB Norway. “It can be extended to additional sectors and companies that previously could not issue green bonds and is thus a vital complement to green bonds. With a sustainability-linked bond a company can clearly communicate its overall sustainability goals to the market and its investors.”
Specialised in shipping chemicals
Odfjell is a tanker company that specialises in shipping chemicals used in all types of common products, from construction material to medicines and clothing. The company has more than 2,300 employees and operates a fleet of some 80 vessels.
Odfjell has high sustainability ambitions both for its climate impact and with respect to social and economic factors. Last year it communicated its strategic goal to halve the carbon intensity (CO2 emissions in relation to distance travelled and deadweight tonnage) of its fleet by 2030 compared with the base year 2008.
This is more ambitious than the goal set by the International Maritime Organisation (IMO) to reduce the industry’s carbon intensity by 40 per cent by 2030 compared with the base year 2008. To date Odfjell has achieved a 27,3 per cent reduction since 2008.
With the bond that has now been issued on the market, Odfjell is borrowing NOK 850 million. The bond has a tenor of four years. Six months prior to maturity a measurement will be taken of the company’s reduction in carbon intensity. In the event Odfjell falls short of its set reduction target, it will have to pay an extra premium to the bondholders.
In contrast to a customary green bond, where the borrowed money is earmarked for specific environmental projects, this new type of sustainability-linked bond is linked to the issuer’s sustainability strategy and performance based on predefined and externally verifiable Key Performance Indicators. If the target for the KPIs are not reached, it will entail a cost for the issuer and a premium for the investors, which can i.a. be regulated either through an adjusted coupon or, as in this case, an adjusted redemption price, which are determined in a reconciliation prior to the bond’s maturity.
This is essentially the same principle that applies for sustainability-linked loans, which are already established on the market.
This past summer the International Capital Markets Association (ICMA) published international principles for sustainability-linked bonds. SEB, together with Credit Agricole, Natixis and Morgan Stanley, led the working group that devised and drew up the principles.
The other banks that co-ordinated the transaction and acted as bookrunners were DNB and Nordea.