Online retailer Amazon Inc. issued its first sustainability bond on Monday 10th. The bond raised $1 billion that will be invested in clean transport, renewable energy, greener buildings, and affordable housing, among other things. Amazon joins a growing list of companies offering sustainability bonds, like luxury fashion house Chanel and pharmaceutical firm Novartis AG. Increased demand from investors for companies to advance their environmental, social, and corporate governance (ESG) causes is putting pressure on asset managers.
A sustainability bond is a fixed-income instrument designated to raising money for climate, environmental and social projects. These bonds are usually asset-linked and backed by the issuing entity’s balance sheet – so, in this case, Amazon’s balance sheet. For this reason, they usually have the same credit rating as the issuer’s other debt obligations.
Sustainability bonds are similar to green or climate bonds, except the latter two focus purely on positively affecting the environment. The former, however, has a positive social outcome, too.
According to the Climate Bonds Initiative, the issuing of green bonds globally reached a record high of $270 billion at the end of 2020. This figure is expected to reach $450 billion by the end of 2021.
Amazon has said that its new sustainability bond forms part of its recent Sustainable Bond Framework, with the capital going towards new and existing climate-focused projects. However, the money the online retailer raised through the sustainability bond is a fraction of the total debt it issued on Monday, which was approximately $18.5 billion. This was Amazon’s biggest bond sale ever and is thought to be driven by cheap borrowing costs.
Among its projects is its acquisition of electric vehicles for its transportation fleet. In February 2020, Amazon announced it was working with Rivian Automotive Inc., an electric truck start-up. The online retailer aims to have 10,000 electric vehicles on the road by 2022 and 100,000 by 2030. This is all part of its larger goal of being carbon neutral by 2040. The company has also partnered with Mahindra Electric and Mercedes Benz. According to Morgan Stanley’s AlphaWise analysis, by 2022, Amazon Logistics will be issuing 6.5 billion packages per year, so rethinking its delivery approach is vital.
The framework also includes a project centred on sustainable buildings. Amazon will install all-electric heating and cooling systems powered by renewable energy in its new headquarters located in Arlington, Virginia.
During the coronavirus pandemic, Amazon’s treatment of its workforce has come under scrutiny, triggering its commitment to social projects. Business boomed for the online retailer throughout the global pandemic – Amazon’s revenue for 2021’s first quarter jumped 44% to $108.5 billion. But according to allegations which the company denied, this was to the detriment of its employees’ health.
As investors, especially millennials, look to back environmental causes, more debt issuers are introducing sustainability and green bonds to their offering. Large companies like Amazon are under scrutiny to follow suit as investors have higher expectations of them, considering they have the capital to make positive change. Amazon is the world’s largest online retailer by market capitalization. At the time of writing, the staggering figure is approximately $1.6 trillion.
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