Woolworths Group Ltd (ASX: WOW) issued “green bonds” to investors and the offer closed Friday more than five times oversubscribed.
So what are they?
Woolworths was founded in 1924 by Percy Christmas, its first store was opened in Sydney’s Imperial Arcade.
Today, Woolworths is Australia’s largest supermarket business, it operates Woolworths supermarkets in Australia and Countdown in New Zealand. It also runs the retail department store Big W. With over 3,000 stores and more than 200,000 employees it’s one of Australia’s largest employers.
Green bonds, in the words of Woolworths, “support the financing of projects, assets or expenditure that will deliver positive environmental outcomes and are aligned with the Green Bond Principles.”
Basically, they are bonds that are used specifically to finance ‘green’ initiatives. Woolworths is the first retailer in Australia and the first supermarket globally to issue green bonds that are certified by the Climate Bonds Initiative (CBI).
According to its website, the CBI is an international organisation working to mobilize the bond market for climate change solutions. They are a not-for-profit organisation that certify bond initiatives, similar to the way a FairTrade label works.
How Big A Deal Is This?
The global green bond initiative reached US$168 billion in 2018 and is expected to grow to US$250 billion this year.
Woolworths raised $400 million from investors at a rate of 2.85%, but as mentioned the demand for the bonds was much higher.
A quick search brings up a few green bonds ETF’s but not from the main players in the market like Vanguard. If the market does grow at the rates expected, we will see more interest for these environmentally-friendly bonds and maybe a few more ASX bond ETF’s dedicated to them.
An interesting question is whether investors may be willing to sacrifice some return to purchase bonds that will be used for a good cause. If they are, this could provide a cheap source of funding for Australian companies in the eco-friendly space. I don’t think that question can be answered just yet.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.