Green Bonds — the Fashion Industry’s Newest Must-Have

Farouk Al-Salihi

With the leaves turning, the days shortening, and park days remaining the go-to for COVID-conscious socializing, there has been no better time for my green corduroys. They are a deep moss green — venturing into hunter or even artichoke depending on the lighting — and really the only item of clothing I want to wear when I check the morning forecast. Green, I am happy to announce, is the color of the season, and it would seem that I am not the only one who has come to this conclusion. The latest spate of digital and analogue runway shows has incorporated green to a varying degree but two major fashion houses have aligned with my personal declarations in the most exciting and evocative part of the fashion world: corporate finance.

In the past month, two industry behemoths — Chanel and Burberry — have issued a new form of debt facility dubbed “sustainability bonds.” Those of us who have been paying attention to these kinds of things will recall that it was only little over two years ago that Burberry was in hot water for literally burning tens of millions of dollars worth of leftover merchandise[1]. Since that admission, the iconic clothiers have been dealing with widespread criticism of their environmental impact. Burberry is not alone. It would seem that consumers have begun to prioritize values other than convenience and cost. Perhaps similar to when food goods conglomerate Kraft-Heinz realized that customers had suddenly decided to care about the health impacts of their foods to the company’s significant detriment, it seems that the fashion industry is now having its own reckoning[2]. From the rise of Emma Watson-backed eco rating guide Good On You, to Nike and Adidas’ recycled material efforts, and numerous eco-driven advertising campaigns from reformation, H&M, Levis and many others. Green is certainly starting to trend[3].

However, brands are starting to realize it’s not easy being green. It is probably a good time to introducing greenwashing into the conversation. The backlash to all these facially positive steps has been the accusation that these enormous companies are, as enormous companies often do, simply reacting to consumer demand. Making changes more for the sake of the appearance of change than actual change. The industry model, as it currently exists, is antithetical to what most environmental critics say with regards to clothing. When we are all told to buy less, buy better, wear more, a company whose financial success depend on us doing the opposite is never going to be the most natural ally. So maybe the cynics have won this round; these bonds are nothing more than an attempt by an industry, intent on resisting the kinds of actual change necessary, to seem more ecofriendly by the power of PR and marketing — getting into the JLA Beat was certainly quite a win for the advertising boffins at Burberry and Chanel.

Cynicism aside, there is at least something different here from the extensive marketing campaigns and cloying declarations of improving supply chain management. The implications of Burberry engaging a £300 million bond are perhaps not as strong as they could be; the notes do not allow holders to trigger the £30 million default in the event that funds are not dispersed fully on environmental projects and there are only broad descriptions of types of projects listed in the prospectus[4]. But nevertheless, the company is engaging significant debt with the express purpose of using the funds to expand their environmental efforts. Furthermore, the terms of Chanel’s $700 million issuance do even more than set aside the funds for sustainable changes[5]. The Luxemburg Exchange listed bonds would see Chanel having to repay its 5-year tranche at a heightened 100.5 percent of face value on maturity in July 2026 if the company is not wholly reliant by then on renewable electricity. Additionally, the 10-year tranche will cash out at 100.75 percent premium in July 2031 if Chanel falls short on its specified greenhouse gas emission targets. No small commitment on either company’s part.

It may be a long time before we consider the fashion industry even remotely aligned with environmental activism and a wider push toward climate consciousness, but accusations of greenwashing may be harder to level at fashion houses if they continue to put their money where their mouths. It’s green season my friends! Please enjoy responsibly.