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Sustainable Supermarkets

Facing climate change challenges head on

Investing newsroom
Matt Logan, Senior Investment Analyst — Fixed Interest

Matt Logan
Senior Investment Analyst — Fixed Interest | Email Matt »

22 October, 2021

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Climate change can feel overwhelming. With global CO2 emissions measured by the billions of tonnes per year, how do we tackle such a massive problem? Like all great challenges, the key is to start today. Great people, and great businesses don’t put their head in the sand – they face challenges head on.

Woolworths is such a company. As Australia’s largest retailer they operate over 3,000 stores (including Countdown in New Zealand) and employ more than 200,000 people. This comes with a significant energy footprint. The company estimates they use about 1% of all electricity generated in Australia. Given over 50% of Australia’s electricity generation comes from coal, that’s a lot of CO2 emissions from this source alone.

So what are they doing about it? Firstly they’ve set themselves a science-based target – to reduce CO2 emissions from direct sources (scope 1 & 2) to internationally agreed levels, in line with the Paris Agreement. A lofty goal. But what does this mean in practical terms for Woolworths’ overall business and day to day operations?

To reach their target, they will need to reduce CO2 emissions by more than 60% by 2030. No small task, but they are getting on with it. Firstly, they have targeted 100% renewable electricity use by 2025 – a near term achievable goal that will move the needle significantly. They are achieving this by directly sourcing new renewable energy from wind and solar sources, helping to accelerate sustainable energy projects. As a small example, their supermarket rooftop solar panels alone generate the equivalent electricity to power more than 7,000 homes.

They are also retrofitting new, less CO2 intensive refrigeration systems, installing LED lights and redesigning the supermarkets themselves to be more energy efficient. These projects are just a sample of many difficult and complex projects the company is taking on. The results are beginning to show already. From a 2015 baseline to this year, they have already reduced CO2 emissions by 28.9%.

These investments do not come cheaply. Woolworths spent around A$170m last year on sustainability projects alone and with their ambitious goals, a lot more investment is required. Enter Fisher Funds to lend a hand, and a dollar or two.

In September we participated in the launch of new sustainability-linked Woolworths bonds, issued to help pay for the above (and more) projects. By raising A$700m, these bonds will help to fund a large portion of their near-term sustainability focused capital expenditure, accelerating reductions in CO2 emissions.

As active investors, we engaged with the company during the process and liked that the company reports annual progress towards their emissions target, linking the bond to the company’s key 2030 sustainability goal.

Of course, we also like the business, as the clear market leader in Australasian supermarkets, driving innovation across many areas. We are not alone in this regard, as Woolworths is also found in our Australian equity portfolios.

High quality businesses like this, that are truly forward-looking and invest for the long term are the sorts we like to partner with. What’s more, the interest rate received on this bond is similar to other lower quality, nearer-sighted borrowers – making it a great investment in a great company. A real win-win-win, for investors, Woolworths, and the planet.

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