Intro: Underlining Philips’ commitment to advancing sustainability in all areas of its business, the company has issued its first-ever Green Innovation Bond as a means to finance its sustainability activities. Paul Rekmans, Head of Corporate Finance at Philips, discusses how this innovative bond will help Philips to meet its sustainability targets, and how the company’s finance function pioneered it.
Q: What is a Green Innovation Bond?
PR: Philips’ vision is to make the world healthier and more sustainable through innovation. To help achieve that vision, we have embedded sustainability into our processes and functions. In 2017, Philips was one of the first companies to develop a Revolving Credit Facility with an interest rate linked to its sustainability performance. Many other companies have since followed that example.
As a next step, we have now developed the Philips Green & Sustainability Innovation Bond Framework, under which we can issue Green and/or Sustainability Innovation Bonds as a means to finance our sustainability activities. The Philips Green Innovation Bond is the first bond issued under this framework.
The proceeds of the bond will be allocated to a portfolio of projects on green innovation, the transition to the circular economy, and becoming carbon neutral, for which Philips has set clear targets. As such, we see great benefits in issuing a Green Innovation Bond!
Q: How will this Green Innovation Bond help Philips achieve its sustainability goals?
PR: Green Innovation includes all R&D activities directly contributing to the development of green products and solutions. Typical examples are reducing the energy demands of large imaging systems such as MRI scanners, developing energy-efficient patient monitors with reduced material use, and developing connected e-health applications that reduce the travel-related carbon footprint of healthcare. Over the next few years we will report on an annual basis to show investors how Philips has spent an amount on Green Innovation projects equal to the proceeds of the bond.
Q: Why are green innovation bonds popular with investors?
PR: The green bond market has been growing over the past few years, as investors become increasingly focused on how sustainable their investments are. The issuers in this market have mainly been sovereigns, financial institutions and corporates in the utilities, real estate and transport arena.
What is new about our bond is that the proceeds will be allocated to a portfolio of green innovations, something that was widely recognized by investors who attended our 2-day European roadshow, where we explained our Green & Sustainability Innovation Bond Framework. As a result, the order book was very strong from the launch, with many new high quality sustainable investors expressing an interest in participating. This strong demand has allowed us to price the bond at a 0.500% coupon and a yield of 0.574%, the lowest ever yield on a fixed-rate bond for the company.
Q: What was your role in developing this innovative bond?
PR: To support issuance of this bond we created Philips’ Green & Sustainability Innovation Bond Framework. This framework was developed through close collaboration between our Corporate Finance and our Sustainability teams. We recognized increased investor focus on sustainable investments and developed a product that fits in very well with the direction the overall bond market is going. At Corporate Finance, we realized that this development in the market is a natural fit with Philips’ vision to make the world healthier and more sustainable through innovation.
Q: Are there any other innovative projects going on in Philips’ Corporate Finance function?
PR: The Green & Sustainability Innovation Bond Framework also allows us to issue Sustainability Innovation Bonds. We could use the proceeds of this type of bond as an alternative means of financing our expenditure on Sustainable Innovation, for example, contributing to financially sustainable care and improved access to care for underserved communities.
In addition, as part of Philips’ Group Treasury, we continuously monitor how new developments, such as Blockchain, Fintech and Big Data, can help us to support the company. It is very important to stay on top of what is happening in the market and how it can be applied to help Philips achieve its vision.