The retail giant $Walmart(WMT.US)$ is selling its debut sustainable debt, which is the biggest ever for a U.S. company.
You may have heard the term sustainable debt or green bond many times, but what is it?
What are green bonds?
Green bonds are designated bonds intended to encourage sustainability and to support climate-related or other types of special environmental projects. More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, clean water, and sustainable water management.
There has been an increased jump in issuance of bonds and loans tied to environmental, social, and governance performance, or ESG, to meet the huge demand from investors for socially responsible investments.
The need for funds to combat climate change has been estimated as running into trillions of dollars, more than any government could invest. Green bonds provide a way for other entities to get involved by issuing bonds that are destined to finance environmental projects. The biggest public green bond issuers are financial institutions and corporations whose bonds have different uses: corporate green bonds are used to finance the issuer's own projects while FIs' bonds are used to lend and invest in other firms' projects.
Why is Walmart doing this?
Walmart has a target of achieving zero emissions by 2040 and also aims for a 1 billion metric ton cut in emissions from its supply chain by 2030. The company's sustainable debt issuance as it is trying to push its climate-related efforts, such a reducing carbon dioxide emissions; also, boosting recycling and cleaning up its supply chain. The deal is substantially big, and in fact, surpasses the second biggest issuance made by Next Era Energy Capital for $1,5 billion in June.
What will Walmart do with the proceeds?
Over the next few years, Walmart intends to allocate an amount equal to the net proceeds of the $2 billion offering toward a portfolio of Eligible Green Investments that meet certain eligibility criteria within the areas of renewable energy, high-performance buildings, sustainable transport, zero waste and circular economy, water stewardship, and habitat restoration and conservation. Green bond proceeds will support key environmental initiatives, reinforcing Walmart's mission to drive collective climate action.