Starbucks Raises $500 Million With Its First Sustainability Bond

  • Ten-year notes will support farmers, ethical coffee sourcing
  • Company will publish annual updates on use of bonds’ proceeds

Starbucks Corp. is turning to the bond market to fund its sustainable-coffee efforts.

The Seattle-based chain has issued a first-of-its-kind $500 million U.S. corporate sustainability bond, according to a statement Monday. The 10-year, 2.45 percent senior notes will fund programs that ensure coffee is grown and distributed in a way that can be maintained over the long run, such as providing fair pay for workers and protection for wildlife. Out of the 551 million pounds of coffee Starbucks purchased last year, 99 percent met its ethical sourcing standards, the company said.

“It’s really the only way we source coffee and we thought financing that supported and encouraged that core practice of ours would be helpful,” Scott Maw, chief financial officer of Starbucks, said in an interview.

Sustainability bonds are used to fund projects with a social impact, but they differ from the more prevalent “green bonds,” which fund environmental projects. Since 2012, 21 bonds have been issued globally to fund social projects. They’ve raised $4.6 billion, including the new Starbucks bonds, according to data tracked by Bloomberg. Most of the issuers in the past have been development banks and financial services firms, rather than corporations.

‘Significantly Oversubscribed’

Starbucks had initially looked into issuing a green bond to support some of its environmental and eco-friendly retailing projects. But in the process of speaking with banks, the company learned about the option to issue a sustainability bond, Maw said. The sustainability bond issue was “significantly oversubscribed” and attracted interest from a diverse group of socially focused investors outside its normal investor base, Maw said.

In addition to financing coffee purchases, the bond will support a $50 million loan program that helps farmers rotate their crops and fund a network of eight farmer-support centers for suppliers in Rwanda, Tanzania, Colombia, China, Costa Rica and other countries. Proceeds also will go toward maintaining crop stability and sustainable-farming practices.

In addition, bond proceeds could support the company’s efforts to develop coffee plants resistant to drought and a fungus that causes coffee leaf rust, Maw said. Coffee prices, which fell 24 percent last year, have been among the most volatile commodities this year. Dry weather across coffee-producing regions has tightened supply, and the U.S. Department of Agriculture is forecasting record demand this year. Starbucks, which uses a set of standards called “CAFE” -- short for coffee and farmer equity -- pays a premium to futures-market prices for coffee.

Starbucks will publish annual updates on the use of the sustainability bonds’ proceeds until they have been fully allocated to projects. The company’s coffee standards include 140 different requirements for sustainable sourcing, Maw said. Conservation International then verifies that its coffee has been grown and delivered sustainably, he said.

Sustainable sourcing is “inseparable from what we do,” Maw said.

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