Telus raises $750-million in ESG bonds that link interest rate to GHG emissions

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Telus Corp. won investor support for its ambitious environmental goals by selling $750-million of bonds on Monday that pay a low interest rate if the telecom company cuts greenhouse gas emissions, but a much higher rate if it misses its goals.

Vancouver-based Telus became the first Canadian company to issue sustainability-linked bonds, or SLBs, and encountered demand for its debt that far exceeded supply. The concept of linking financings to ESG goals was developed in Europe, and there are now more than US$44-billion of SLBs outstanding worldwide.

The new Telus debt pays 2.85 per cent in annual interest over the next 10 years, significantly lower than the rate the company would pay on a traditional bond. Telus estimates it cut borrowing costs by six basis points – there are 100 basis points in a percentage point – which translates into a $4.5-million saving over the next decade.

However, if Telus fails to hit its goal of reducing greenhouse gas (GHG) emissions by 46 per cent by 2030, the interest rate on its bonds rises one percentage point, to 3.85 percent, after that date. Missing its target would increase Telus’s borrowing cost by $7.5-million.

“The successful completion of our sustainability-linked bond reinforces our long-standing leadership in social capitalism,” said Darren Entwistle, Telus’s chief executive officer. “Our science-based, greenhouse gas emissions reduction target further validates our commitment to reduce our carbon footprint and care for the planet that our children will inherit.”

Telus’s GHG emissions will be independently audited. The company’s environmental targets are focused on limiting global warming to 1.5 C, which is recognized as the most ambitious goal under the Science Based Targets initiative. (The initiative is a global organization, whose partners include the UN, that encourages private-sector companies to set emissions reduction targets.)

Telus’s offering received an endorsement from Sustainalytics, an Amsterdam-based independent ESG analytics firm, which confirmed the company’s approach aligned with international standards for sustainability-linked debt.

Telus started the marketing campaign for the debt offering with a $500-million target, then increased the size to $750-million in the face of more than $2.5-billion of demand from more than 75 institutional investors in North American and Europe.

RBC Capital Markets led the transaction, along with Scotiabank and BMO Capital Markets. Bankers estimate that more than 80 per cent of Telus bond buyers were ESG-focused funds, and a number of these investors bought the telecom company’s debt for the first time.

Other Canadian companies are expected to follow Telus’s lead by issuing SLBs. Earlier this month, Calgary-based Enbridge Inc. filed for what’s expected to be the first SLB offering from a North American pipeline company. In addition to targeting a 35-per-cent reduction in GHG emissions by 2030, Enbridge has set targets to have 28-per-cent representation from racial and ethnic groups in its work force, 40-per-cent gender diversity across the organization, and a board of directors that is 40-per-cent female by 2025.

“Our advice to other companies on SLBs is to just do it,” said Telus treasurer Stephen Lewis in an interview. “It’s good for the planet, it’s good for customers, it’s good for the company, and the investor demand for these financings couldn’t be stronger.”

Editor’s note: An earlier headline stated Telus launched a green bond, when in fact, it has sold $750-million in sustainability-linked bonds with interest rates linked to sustainability goals.

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