Tesco issues UK’s first rated corporate sustainability-linked bond

Tesco's inaugural sustainability-linked bond will support its ambitious decarbonisation targets.


The €750mn benchmark 8.5-year sustainability-linked bond (SLB), for which BNP Paribas acted as joint sustainability structuring advisor and joint bookrunner, is also the first SLB issued by a UK rated issuer, the first SLB from a retailer and Tesco’s inaugural SLB in the public market.

Tesco is leading the way in their transition towards a low-carbon economy, building on the broader momentum around the UK government’s decarbonisation commitment, which targets net zero by 2050.
In line with Tesco’s environmental strategy and financing objectives, the SLB will be used for general corporate purposes. The coupon is tied to the company’s sustainability performance related to scope 1 and 2 GHG emissions reduction by 2025. This includes progressive sustainability performance targets (SPTs) to reduce the Tesco’s greenhouse gas emissions by 60% by 2025 and by 85% by 2030, with respect to a 2015/16 baseline. The deal received strong investor demand and was more than six times oversubscribed.

What are SLBs?
Sustainability-linked bonds (SLBs) are a new type of general corporate purpose bond in which investor coupons are tied to an issuer’s sustainability key performance indicators (KPI), such as decarbonisation. Most recently, BNP Paribas has helped develop the Sustainability-Linked Bond Principles.

Sustainalytics, the ESG and corporate governance research and ratings provider, provided a second party opinion on Tesco’s Sustainability-Linked Bond Framework, noting that Tesco’s ambitious SPTs are aligned with a science-based trajectory.

Tesco also published a Sustainability-Linked Bond Framework in line with the Sustainability-Linked Bond Principles administered by the International Capital Market Association (ICMA). The annual report on Tesco’s website will disclose progress towards the SPTs throughout the relevant period.

Delphine Queniart, Global Head of Sustainable Finance and Solutions for BNP Paribas Global Markets, said: “Through this inaugural transaction, Tesco illustrates that sustainability-linked bonds can bring transparency and scientific rigour to evolve the UK bond market. Their framework highlights how a large corporate can align their financing approach to a progressive decarbonisation pathway and embed their sustainability strengths into an already highly successful funding strategy. This ultimately garners significant investor support for their environmental objectives.”

In October 2020, Tesco became one of the first UK retailers to establish a sustainability-linked loan (SLL). The GBP2.5bn revolving credit facility linked the interest to Tesco’s Little Helps Plan, including emissions reduction, renewable energy sourcing and food waste reduction. BNP Paribas was sole coordinator and sustainability coordinator for the facility.

These transactions highlight the increasingly important role of sustainable finance in embedding transparent decarbonisation objectives into UK corporate debt strategies.

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