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Henkel issues 1st bond linked to plastic waste reduction

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Henkel issues 1st bond linked to plastic waste reduction

Henkel AG & Co. KGaA, the German company that makes Loctite adhesive and Persil laundry detergent, said July 3 that it completed the issuance of what it described as the first-ever bond linked to reducing plastic waste.

The five-year, $70 million bond was issued via a private placement with Japanese insurance companies Dai-ichi Life Holdings Inc. and Dai-ichi Frontier Life Insurance Co. Ltd. Henkel said the proceeds from the bond would support projects to reduce plastic waste in its operations. HSBC acted as green structuring adviser and lead manager on the transaction.

Henkel is often cited as one of the more progressive companies in tackling environmental and social issues. In 2018, it was the first company in Germany to conclude a syndicated "sustainability linked loan," a credit facility tied to its performance in three independent sustainability ratings.

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"Sustainability is not only firmly embedded in our strategic framework for the future but also increasingly relevant for investors and the financial markets," CFO Marco Swoboda said in a July 3 statement describing the plastic-waste bond.

Kenjiro Okazaki, a general manager at Dai-ichi Life, one of the largest private life insurance companies in Japan, said, "As the bond is being issued by a manufacturer, the impact goes directly into the supply chain where Henkel is developing more sustainable packaging solutions, for example by increasing the amount of recycled plastic."

Plastics account for 12% of the world's solid waste, mainly the result of excessive packaging and low levels of recycling, according to a February report published by UBS. Plastic production grew from 15 million metric tons in 1964 to 311 million metric tons in 2014, with volumes expected to double again over the next two decades. The report said that without change, plastics in the sea could outweigh fish by 2050.

"Today, 95% of plastic packaging's material value, or $80-$120 billion annually, is lost after just one use," UBS said. "Just 14% of plastic packaging is collected for recycling. And when additional value loss in sorting and reprocessing is factored in, only 5% of material value is retained for a subsequent use."

In another report published in March, UBS noted that tackling waste represents only 4% of the reported use of pro­ceeds from the $700 billion green bond market, which is more tilted toward energy efficiency and green buildings. The bank described a "new concept" whereby companies could tackle waste by raising dedicated financing for its reduction, as Henkel has done. "Like green bonds, these would be standard bonds that appeal both to mainstream traditional investors and to the growing cohort of sustainable investors," UBS said.

Portuguese packaging company Logoplaste Consultores Técnicos SA made waves in June when it changed the pricing structure on one of its leveraged loans to tie interest payments to ESG measures, creating the first institutional term loan of its kind. "As a debt investor, it's always scary to take on something nobody's done before with no track record of how it will go," one senior lender involved told LCD News, an offering of S&P Global Market Intelligence. "This is a situation where finance and sustainability come intrinsically together, and it's a win-win for everybody."

Henkel said the proceeds from its bond would contribute to financing activities aimed at meeting the company's more ambitious 2025 packaging targets it announced March 20. Over the next five years, the company plans to make all of its packaging recyclable or reusable and to reduce the amount of virgin plastic from fossil sources in its beauty care and laundry and home care businesses by 50%.

The company is pushing toward that goal. On a June 17 call with shareholders, CEO Carsten Knobel said Henkel had acquired a stake in Truman's, a U.S. cleaning products startup that uses only refillable bottles and refill cartridges containing concentrated detergent. Henkel's industrial business had also invested in a recycling startup in Germany called Saperatec.

"Together we are developing recyclable adhesives," Knobel said. "This will also enable flexible packaging to be recycled, particularly in the food industry."