Sustainable Bonds – Sustainability and the banks

17.09.2020

In connection with Otto Group’s comprehensive commitment to sustainability, the Sustainable Finance Framework was developed in 2019 to quantify and account for the social and environmental benefits created through the initial links of Otto Group’s value chain, which deal with the procurement and processing of the raw material.

Petra Scharner-Wolff serves on
Otto Group’s executive board as
Chief Financial Officer Controlling,
Human Resources Otto Group.

What role does Otto Group’s long-standing support for Cotton made in Africa play in this context, for example regarding the 100-percent goal set in its textile strategy?

Sustainability is not a new trend for the Otto Group. In fact, it has been part of our company’s DNA for decades. Prof. Dr. Michael Otto, now chair of our supervisory board, enshrined environmental protection in our corporate goals in 1986, when he was CEO. Sustainability initiatives — regardless of whether or not they have any connection to the Otto Group — remain close to his heart. Following along this line, one of our goals for 2020 was to use 100 percent sustainably processed cotton for all our own brands and licensing partners in the fashion sector, having already exceeded 95 percent in the financial year of 2019. A key role is played by Cotton made in Africa, a programme that introduces smallholder farmers in Africa to sustainable farming methods and works within their communities to improve education in schools and promote gender equality.

Through the Sustainable Finance Framework, the Otto Group became the first German company to successfully issue sustainability bonds on the capital market in April 2019, raising around EUR 250 million from investors. Some of the funds have been used to procure textiles bearing the label of Cotton made in Africa: nearly 87 million such textile items were acquired in 2019.

How would you rate Otto Group’s chances of acquiring additional funds on the capital market, for the purpose of supporting Cotton made in Africa, by issuing sustainability bonds that comply with the guidelines of the International Capital Markets Association (ICMA)?

We believe sustainability bonds have great potential. The market for such certified sustainable bonds has grown exponentially in recent years. Institutional investors are increasingly launching funds that are instructed to invest exclusively in green asset classes. The unrealised issue volume is currently estimated at EUR 60 billion. This is a significant sum despite comprising only a fraction of the overall market for corporate bonds, which is worth nearly EUR 2 trillion. Our view is that there is still room for growth. We are happy to do our part to further develop the market. For example, we have continued issuing bonds under the Sustainable Finance Framework, going up to a cumulative volume of around EUR 470 million. We intend to keep implementing the framework and attracting additional investors.

The Aid by Trade Foundation has made it its mission to help improve the living conditions of smallholder farmers in Africa by harnessing market forces, i.e. by raising corporate demand for Cotton made in Africa textiles.

Given that part of the motivation for issuing sustainability bonds is to satisfy your company’s demand for Cotton made in Africa textiles, does the ability to harness additional market forces through the capital market increase the incentive for corporate partners to support Cotton made in Africa?

The sustainability bonds have allowed us to broaden the conversation about sustainability beyond NGOs, the trade press, and the political sphere to also include banks, insurance underwriters, and pension funds. We see it as part of our corporate social responsibility to promote dialogue and raise awareness. We have a saying in Germany: Do good and talk about it. That is what we are doing in the capital market. This could help pave the way for Cotton made in Africa’s other corporate partners to also choose to express their commitment to sustainability through sustainability bonds.