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World Changing Ideas

Starbucks Issues First-Of-Its-Kind Bond To Finance Its Sustainability Operations

Investors have lined up enthusiastically to take part in a $500 million bond dedicated to helping coffee growers.

Starbucks Issues First-Of-Its-Kind Bond To Finance Its Sustainability Operations

Photo: Flickr user Open Grid Scheduler

A successful company with a well-known brand, Starbucks doesn't need to work hard to find money to finance its operations. Every few months, it issues debt that's many times over-subscribed among investors. But, recently, it decided to do things a little differently: It issued a $500 million bond with the narrow purpose of improving its sustainability.

The result? Investors lined even more enthusiastically than usual and Starbucks attracted a new type of investor: Those who put money only into companies with strong environmental, social, and governance (ESG) credentials. In all, 40 of its investors this time were new, says Drew Wolff, Starbucks's treasurer, and 22 had a strong ESG focus.

Flickr user MIKI Yoshihito

"It opened us up to a whole new investor set that we hadn't talked to before, and it started to get them interested in our equity [shareholding] story as well," he says.

Starbucks will use the money in three ways. First, it wants to buy more coffee according to its Coffee and Farmer Equity (C.A.F.E.) standards. These require suppliers to meet conditions around worker rights, financial transparency, fair trade, and the environment.

Second, it will expand a loan facility for coffee farmers, from $20 million to $50 million. This is aimed at those suffering from climate-induced "rust," which is killing many trees in Central America. "Whole chunks of plantations are going to have to be replanted," Wolff says. "That takes long-term financing, as the trees don't produce anything for three years. That's really hard for a farmer to fund and not something a Latin American bank is going to do."

And third, Starbucks plans to use the money to expand a network of agro-advice centers (it currently has eight). These help smaller farmers to improve their productivity and resilience in adverse conditions.

Starbucks's bond is the first of its kind in the U.S. corporate market, Wolff says. Apple issued a clean energy-focused bond in February, and U.S. finance groups have marketed green debt products. But this is the first bond to focus on "social sustainability" in a supply chain. The U.S. is far behind other countries in green bonds: The global market is set to be worth $28 billion this year, according a recent report.

But Wolff expects the U.S. to catch up quickly, now that the green-themed bond seed has been sown. "A whole bunch of treasurers have been calling me since we did this. I think we're at that inflection point and we're going to see a lot more of this. Hopefully, this is the beginning of a wave," he says.

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