Following the call to join in bringing green bonds mainstream, PepsiCo Inc (NASDAQ: PEP), maker of Pepsi is issuing its first green bonds in senior unsecured green securities.
The 30-year bonds, which will be due in 2049, may yield 95 basis points above treasuries, an anonymous source said. The bonds which already trade 94 basis points wider than treasuries of similar date will yield profits that will be used towards the actualization of the Sustainable Development Goals (SDGs) of the United Nations.
This will include funding for the production of eco-friendly plastics, packaging, and cleaner transportation to help mitigate climate change. According to BloombergNEF, green bonds are becoming more popular. Over $120 billion worth of green bonds has already been issued in H1 2019, representing an increase of over 41% from $85 billion issued in the last six months of 2018.
Green bonds are bonds set aside for climate and environmental projects. They are mainly asset-linked and backed by the issuer’s balance sheets.
Pepsi’s Popularity Gives It Advantage
Pepsi is a popular beverage drink in several countries around the globe, selling millions of bottles in a day. This is a much-needed advantage to the exposure for Green Bonds, Tony Trzcinka, a portfolio manager at Impax Asset Management, said. Speaking of the bonds he added:
“It’s important on the corporate side for most investors that these are benchmark-type issues with seasoned issuers that are investment-grade quality. It’s something that fits right in, so it’s a very easy bond to buy.”
Commitment to Sustainable Business
Not only PepsiCo but its close rival Coca-Cola (NYSE: KO) has decided to join in the use of recycled plastics going forward. Coca-Cola had also issued a loan in 2015 connected to sustainability, and the green bonds are an avenue for them to reach the height of achieving sustainability in their businesses that will be more environmentally friendly.
In addition to adopting the use of recycled plastics, Head of green finance at BloombergNEF Daniel Shurey said more can be done to improve water and waste management by the beverage companies to fully align with the SDGs.
If major companies such as beverage companies that provide basic human needs of refreshment are working towards SDGs like Pepsi is, other smaller companies and sectors may soon follow suit and a new perspective of how industries should be run may emerge to put the environment first which will help to mitigate climate change.
Currently trading at $140, PepsiCo stock price has risen 25% so far in 2019. While some investors believe the price gains may continue, others believe the shares are too expensive as a result of the surge, and they will wait for a better price to buy.