Chanel to Make Its Debut on the Public Markets With a Green Bond

LONDON — Chanel is making its debut on the public markets with a new sustainability bond that will trade on the Luxembourg Stock Exchange.

The company said Thursday it successfully raised 600 million euros through the bond issue. Principals said the money will help Chanel transform its business model, and hit a series of ambitious sustainability targets laid out in its Mission 1.5° report, which was published earlier this year.

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The bond issue was “significantly oversubscribed,” Chanel said.

Chanel is the first privately owned luxury company to issue a publicly traded sustainability bond.

The company follows in the wake of peers such as Burberry, Moncler, Prada and Salvatore Ferragamo, which have been raising funds privately, and publicly, to accelerate their green efforts and to show how committed they are to making changes on the sustainability front.

Chanel said the bond will allow it to diversify its sources of funding, while underlining its commitment to sustainability.

This is the first time that outside investors have the chance to own a slice of Chanel, which is privately owned and run by the Wertheimer family. HSBC and BNP Paribas acted as joint structuring advisers and joint book runners.

The terms of the bonds are explicitly linked to the achievement of sustainability commitments made earlier this year as part of Chanel Mission 1.5°, the company’s climate strategy.

Chanel said that progress against the targets will be published annually, while third-party audits will be obtained at relevant performance dates.

The terms of the bonds will also see Chanel held to account for achieving the targets, and penalized “heavily” if they are not met.

The bonds are comprised of two tranches. The first tranche of 300 million euros matures in July 2026 and will bear an annual coupon of 0.5 percent, with a cash premium payment of 50 basis points to be paid at maturity date if Chanel does not meet its target of shifting to 100 percent renewable electricity in its operations by 2025.

The second tranche of 300 million euros matures in July 2031 and will bear an annual coupon of 1.0 percent. A cash premium payment of 75 basis points will be paid at maturity date if Chanel does not meet its targets to reduce its carbon emissions by 2030.

As reported, Chanel is committed to helping limit the mean global temperature increase to 1.5 degrees Celsius, a figure set out in the Paris Agreement on climate change, and to addressing waste across the company.

Chanel said the money raised will support its goals through investing in start-ups focused on the development of sustainable materials, incentivizing suppliers to convert to renewable energy, and providing direct financial support for new renewable-energy projects at a community level in key regions.

Philippe Blondiaux, Chanel’s chief financial officer, said in an interview Thursday the bond issue highlights the company’s pride and commitment to hitting the goals laid out earlier this year.

He said that Chanel took to the public markets, rather than forging a deal with a bank, for a variety of reasons.

“In launching these bonds, Chanel hopes to support the development of the sustainable financing market and the wider social and environmental progress that this type of financing can advance. There is a growing recognition among investors that they have a role to play in helping to tackle climate change, and we look forward to engaging with them,” he said.

Asked whether these new bonds would be a precursor to more public activity, and specifically an initial public offering, which undoubtedly would be a blockbuster, he said “that’s not on the agenda. We’re happy with the financing we have in place.”

The brand has been intensifying its sustainability efforts over the past few years.

In 2019, Chanel acquired a minority stake in the green chemistry company Evolved by Nature as part of its strategy to develop sustainable materials.

Evolved by Nature focuses on designing and developing biomaterials-based products, and its Activated Silk technology, consisting of natural silk in liquid form, provides a nontoxic alternative to chemicals.

It aims to do more and is also looking to invest in alternatives to plastic, silicone and animal-based leather.

Andrea D’Avack, Chanel’s chief sustainability officer, said that with the launch of Chanel Mission 1.5°, the company made a clear commitment to accelerate the move to a lower carbon economy.

“It is our conviction that all businesses need to take meaningful action within their own operations, and work alongside governments and civil society, to help protect the world’s most vulnerable communities and ecosystems from the impact of climate change. Today’s announcement represents a reinforcement of this commitment and we hope to harness our influence to engage with the investor community and be part of the solution,” D’Avack said.

He added that the creation of a long-term bond was in step with the seriousness of its commitments to the environment.

“These are not a series of projects, but a full and in-depth transformation of the business model,” he said, pointing to the sweeping changes that Chanel wants to make with regard to raw material extraction, regenerative agriculture and innovation across its supply chain.

Chanel’s punchy goals have been approved by the Science Based Targets initiative. They include reducing its emissions by 50 percent by 2030; slashing its supply chain’s greenhouse gas emissions by 10 percent by 2030, and shifting to 100 percent renewable electricity by 2025.

Earlier this month Burberry, which is listed on the London Stock Exchange, revealed the pricing of its inaugural sustainability bond. The final terms are for a 300 million pound, 1.125 percent bond due on Sept. 21, 2025.

Burberry’s was the first sustainability-labeled bond to be issued by a luxury fashion company on the public markets.

The British company said it issued the bond in order to diversify its sources of funding, and introduce long-term financing into the company’s capital structure. The proceeds will be used to finance and/or refinance eligible sustainable projects as described by Burberry‘s Sustainability Bond Framework.

Fashion groups have been rushing over the last year to link their financing efforts to sustainability standards. Last November, Prada SpA signed with Crédit Agricole Group on the first sustainability-linked loan in the luxury goods industry. Prada will be granted 50 million euros over five years, with an annual pricing adjustment based on how efficiently it achieves its sustainability targets.

In June, Salvatore Ferragamo SpA signed a credit deal with Intesa Sanpaolo SpA for a maximum amount of 250 million euros linked to that company’s achievement of certain sustainability goals, while in July, Moncler signed a credit deal with the same Italian bank for a maximum amount of 400 million euros, with interest rates tied to how and when it reaches its environmental impact reduction targets.

Early in 2020, VF Corp., parent to brands including Timberland, Vans, The North Face and Dickies, also closed its first green bond.